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«Inaugural-Dissertation zur Erlangung des Doktorgrades des Fachbereichs Wirtschaftswissenschaften der Johann-Wolfgang Goethe-Universität Frankfurt am ...»

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The limited possibility of companies to grow in size is now seen as advantage. They only require small start-up costs and adjustment to changed market situations is more flexible. This situation also produces a highly competitive market environment – if one firm collapses, new ones fill the gap quickly. This is supported by the existing system of heritage described above. This mode of production is particularly efficient in labor-intensive, quickly-changing and segmented markets such as those for textiles, leather or the toys industries. Chinese family firms are successful because of their flexibility and ability to decide quickly. They operate less successfully in capital-intensive sectors where, due to comWhyte, 1995, p. 1003ff.

Wong, 1988, p. 139.

Greenhalgh, 1990, p. 90.

plex production processes, profits can only be made when a certain volume of production is reached (see also chapter 7).

This is related to the issue of Guanxi (see chapter 6). Big networks accumulated through Guanxi help small enterprises to get access to larger resources, even in an unstable political and economic surrounding, therefore further supporting their flexibility and the ability to adapt.941 As mentioned in the chapter on Guanxi, especially in the time of Communism it is often used for favors. During that period of ―impersonal cruelty and indifference‖, the more instrumental side of Guanxi is used. Tactics are emphasized more than ethics when using personal contacts. As Yang states, the ―cunning and instrumental tactics [are] required for survival‖. Even today it is for example used to obtain bank loans or supplies from unofficial sources, but the ―social yearning for more warmth and cooperation in social relations‖ shifts the emphasis of the ―choreography of Guanxi etiquette‖ again back to a more traditional ethic.942 For an efficient use of Guanxi, a certain degree of familiarity has to be established between two parties on the terms that then a shared personal experience exists. Through elements of trust and obligation, business can be simplified – for those being endowed with a sufficiently big network. The basis of such networks can be found in the family and kinship; due to the nature of the relationship, a shared identity and a more ethical background of the connection can be ensured.943 To conclude, the advantage of small family firms in business is their ability to produce at very low costs and to react very flexible to changes in the economy. Especially their possibility to produce with a minimum of labor costs compared to non-family owned companies gives them a comparative advantage. Therefore, traditional forms of division of labor by gender and generation are recreated to achieve economic success. Also, ―despite the hectic pace of economic development, an often turbulent political environment and substantial weakening of the power of the older generation in Chinese families, obligations to parents and the larger family seem robustly intact‖.944 This is not only a reaction to a relaxation of the Chinese economic environment, but is also due to changes in the world economy that supported flexible units of productions. These units are willing to subcontract for large corporations and can adapt easily to changing market conditions, producing high quality for low cost.

Fukuyama, 1995, p. 80ff.

Yang, 1994, p. 110 f.

Yang, 1994, p. 111.

Whyte, 1996, p. 17.

The domain of this new kind of Capitalism is the small Chinese family firm, which has been ―both a major engine of economic growth in the region and a key embodier of the cultural virtues seen as facilitative of economic success‖, which has the ―traditional, collectivist, mutually beneficial Chinese family‖ as a foundation.945 Chinese family firms are based on paternal authority and trust, not a legal system. It relies more on interpersonal relationships than individual rights.946 Thus, the ―dynamics of the Chinese family are absolutely central‖ for doing business.947 In conclusion, both the obstacle and engine view are overly simplistic. As there are no timeless Chinese values, also the Chinese family is not immutable over time. Thus, depending on the external institutional setting, it changed certain patterns while it kept other distinctive features and tendencies. In the contemporary institutional environment of China but also in the global economy, the Chinese family is able to fulfill the requirements of modern economic activity. Under the given circumstances it not only can fuel growth, but is also an important prerequisite for it.948 Greenhalgh, 1994, p. 747f.

Yang, 2002, p. 467.

Whyte, 1995, p. 1014.

Whyte, 1996, p. 19ff. and Whyte, 1995, p. 1017f.

6. Chinese Capitalism: Guanxixue

6.1. A definition of Guanxi 6.1.1. A general definition

–  –  –

While Western Capitalism following Weber required that feudal institutions be destroyed to create an institutional environment perfectly suited for capitalistic production, it is quite different for China. After 1978, traditional institutions were revived, which especially in rural areas was vital for its economic success. The (re)construction of a private sector and entrepreneurship parallel to the state and collective sector by means of personal networks, with the (extended) family as core organizational unit, led to a success which is largely unequalled in history. In contrast to many East European countries, this transformation from command to market economy, and thus to Capitalism, was achieved comparatively smoothly. The economic rise of China coincided with an increasingly flexible global production and thus the transformation increased its pace since the 1990s.950 The Chinese population was able to resort to socio-cultural institutions, such as personal networks, from their own history, which were not forgotten during the time of communism. The family was the most prominent device for establishing small businesses and networks.

The Chinese expression for personal networks is Guanxi (关系). It is often translated as ‗connections‘, ‗relationships‘ or ‗membership‘, but these terms do not reflect the entire range of Guanxi relations as Guanxi is ―a form of social capital that acts as a binding agent among social actors‖.951 Guanxi describes the dynamics of constructing personal relationships within networks and is a central feature of today‘s Chinese society. It is sometimes even called ―a third arm that evolution has created for the Chinese man‖.952 Personal connections between individuals consist in granting favors, receiving services or in gift-giving.

It has to include Gănqíng (感情, ‗feeling‘) even in hierarchical relations. It reflects the depth of emotion within a relationship.953 If the Gănqíng is disturbed, this means not that the emotions but the relationships of people are in disorder.

Cited in Yang, 1994, p. 5.

Dirlik, 1997, p. 304.

McNally, 2010, p. 3.

Nojonen, 2007, p. 1.

Jacobs, 1979, p. 243-253, 259.

Another important concept is that of face (miànzi 面子) and favor (Rénqíng 人情, reciprocity, empathy954). The latter means feelings found in friendship, family and kin relationships but also ‗favor‘, etiquette and custom.955 Rénqíng was introduced in The Book of Rites956 and includes many virtues, like loyalty, justice, honesty and mutuality. It is the source of ritual (lǐ, 礼), which is also part of the Chinese expression for gift (lǐwù, 礼物). Lǐ also entails the sense of 'ethics' or 'etiquette', which mirrors the reciprocity of social relations.957 The term stands for the proper conduct of social relationships and events that preserve social order, thus, also standing for the emotion based on reciprocity.958 Rénqíng is the moral obligation to maintain personal networks for reciprocal giving of complaisances or gifts and is intrinsic to human nature. It ―emphasizes the value of maintaining personal harmony and social order among persons situated in hierarchically structured relationships‖.959 It is understood as long-term ‗debts‘ established by receiving a gift, enduring even generations and failing to repay those debts causes loss of moral and social face.960 The gift-giving relations of Guanxi can be understood as "total social phenomena", having their own etiquette and rules.961 Chinese people traditionally expect that for every given gift one will be given in return, which can also be done in providing mutual help. It is the ethical part of Guanxi, embedding it on the one hand, but at the same time getting its meaning extended in guiding all relationships by rules of propriety. Certain rituals have to be employed that reflect the social status of the giving and receiving person within a nexus of personal relations.962 The notion of reciprocity, obligation and indebtedness is essential for personal relationships, but can also have a tactical dimension to it.963 It "is less a set of rituals than a cultivating of sensitivity to what is appropriate at any time, it provides the lubrication necessary to reduce social friction and it fosters the sublimating of selfIn Gold; Guthrie and Wank, 2008b, p. 10, fn 16, the authors explain that the character rén in Rénqíng is the same than the Confucian rén, meaning human heartedness, a key concept of Confucianism. It is made up of a radical for ‗person‘ plus the number two [仁], ―indicating that to be a fully realized ‗person‘ involves interacting properly with other people‖.

See Hwang, 1987 for an extensive discussion of face and Rénqíng.

See Legge, 1893. See also chapter 4.4.

Yang, 1994, p. 70.

Yang, 1999, p. 147 and Yang, 1994, p. 67.

Hwang, 1987, p. 946.

Wang; Siu and Barnes, 2008, p. 820, Hwang, 2006, p. 277. As a response to ‗Thank you‘, Chinese often say ―Meiyou Guanxi – No obligation!‖. Hsu, 2005, p. 313.

Redding, 1993, p. 49.

Wank, 1999, p. 264, Yang, 1994, p. 70.

Yang, 1994, p. 63, 67, 122.

indulgence in daily interaction."964 It is not only a normative standard but also a social mechanism for obtaining desired goods ―within a stable and structured social fabric‖.965 Additionally, the idea of "face" (miànzi), meaning social status, propriety and prestige is an important factor of Guanxi. A social role has to be successfully performed and maintained, needing to be recognized by others. For example, not being able to return a favor or give a gift of equal value will cause the loss of face for a person. But also if the hierarchies are disregarded, 'face' is lost. The goal of ‗face work‘ is to create a certain self-image and favorable impression on others. Face can be derived by social status, sex or family background. Having miànzi facilitates getting privileges and acceptance through others.966 To maintain face, permanent self-control is needed that also requires not showing any emotions. Open conflicts are also frowned upon, harmony has to be preserved. As a consequence, the profession of lawyers is not considered as very respectable and thus "power derives from role obedience and not from jurisdiction"967, which also means that "the notion of order excluded the notion of law".968 Gifts connect people outside the family by the concept of reciprocity. The distinction between in- and outside is crucial as access to goods or support is limited to family members or other people within the Guanxi network. ―Gift giving facilitates the movement from outsider to insider status‖.969 Thus, it is a cultural concept with strong ethics, and serves also as ―a means for disciplining not only others but also oneself‖. 970 Rénqíng bridges ―the gap between the known and the unknown‖.971 Rénqíng is not equivalent to private, secret emotions but is a public socially structured phenomenon with clearly identified mutual obligations which means it can have a tactical dimension to it. This has implications to the relationship of Guanxi and corruption (s. below).972 An essential element of personal relationships is trust. The meaning of trust in the Chinese context differs from the Western understanding of the term. In the West, trust is often focused on systems or organizations so that the dependence on personal integrity and guarantee decreases. This reflects the willingness ―to rely on another party because of confiRedding, 1993, p. 49.

Hwang, 1987, p. 954.

Hwang, 1987, p. 960ff.

Redding, 1993, p. 128.

Needham, 1956, p. 290.

Joy, 2001, p. 240+252.

Hu, 2007, p. 60f.

Nojonen, 2007, p. 40.

Herrmann-Pillath, 2000, p. 118.

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