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

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straints of a not yet fully established market economy, smaller firms such as family enterprises have the advantage to react flexible to the requirements for doing business.1060 By and large, family connections build on trust and Guanxi prove to be essential for doing business in China in the course of economic reforms.1061 Hence, ―social relationships built on gift exchange provide a substitute form of trust that can improve the profitability of investment and reduce the risk of arbitrary bureaucratic interference that is not in the interests of the investors‖.1062 It mobilizes cultural values such as obligation and reciprocity to pursue ―both diffuse social ends and calculated instrumental ends", substituting and complementing for (not yet) existing market mechanisms.1063 Those market ‗imperfections‘ favor business connections among smaller groups of people over more complex organizational structures. Under the constraints of a not yet fully established market economy, smaller firms such as family enterprises have the advantage to react flexible to the requirements of doing business.1064 This process is known and used as part of the art of Guanxi described above. It is in this context used as ―the skilful mobilization of moral and cultural imperatives such as obligation and reciprocity in pursuit of both diffuse social ends and calculated instrumental ends".1065 Hence, even if the aim of engaging in Guanxi is instrumental, it is still subordinated under the objective to create personal relations, having not only current advantages in mind, but more a long-term commitment. As a result, business is easier accomplished by small enterprises mostly in the ownership of families without the involvement of the state. This results in the creation of a private sector that largely is left on its own and thus in need to establish its own rules - the art of Guanxi.1066 Krug, 2002b, p. 140f.

Hamilton; Zeile and Kim, 1990, p. 108.

Smart, 1993, p. 398.

Yang, 1994, p. 35.

Krug, Barbara (2002): ibid., p. 140f.

Yang, 1994, p. 35. A typical example of using Guanxi for business purposes is given in Nojonen, 2007, p 40f.: ―Mr. Wu illustrated how he used a combination of direct and indirect approaches in reaching a deal.

First he made a direct official approach, but after he failed…he found people from various levels and arranged meeting with them. He entertained people at banquets and with karaoke, gave gifts…, and thereby established Guanxi with a number of people in the organization…[H]e waited for a couple of weeks before utilizing his new favorable channel through the mid-level management with the ‗right people‘. Eventually, he got a chance to introduce his ‗competitive‘ product to the decision-makers. Ultimately, they made a deal‖. A similar example is described by Hu, 2007, p. 193f. In this case, in 1986 an entrepreneur sought to buy steel plates from another company which by then could not be obtained on the market and which were short in supply. He finally succeeded after finding out that the other company‘s boss‘ wife came from the same hometown than himself which facilitated the first contact. The deal was secured after a gift of expensive foreign cigarettes – the favorite brand of the business partner.

Hamilton; Zeile and Kim, 1990, p. 124.

However, Guanxi does not only play a role in investing and establishing new enterprises. It is also an important factor in the workplace itself. This is not only the place where an individual is employed, but much more than that, also a social institution on which a person is socially, economically and politically dependent. The danwei (work unit) functions as provider for travel and residency permissions, also able to intervene with municipal housing authorities, the courts and police and other agencies on behalf of the workers.1067 Extensive interpersonal ties between Chinese employees and more influential people exist to obtain goods and services. Workers can also obtain those goods outside the workplace but they often do not have the same quality or are more expensive. Thus, in creating a small community at their danwei, workers engage in an instrumental Guanxi to utilize their opportunities.1068 The working place takes the place of a big family, with a boss-worker relationship replacing father-son relations.1069 In private family-owned enterprises this relationship takes the form of a paternalistic management.

To summarize, the ritual gift-relations of the rural areas contrast the more situational and instrumental ones in the cities. Still, even if the Guanxi practiced in urban areas is not organized in clan structures, the exchanges of Guanxi are designed on the base of kinship relations. It was shown that Guanxixue is not an ahistorical concept with a specific set of practices no matter in which social or cultural situation it is used. Rather, it has different meanings and employments depending on the economic and political context within the Chinese society In general, Guanxi Capitalism shares the major principles of Western Capitalism, but those instruments are used to obtain not only material, but, equally important, also symbolic capital.1070 Contrary to Western capitalistic thinking, there is a gain of giving away. The more generous businessmen prove to be, the more symbolic capital - social status and face

- they gain. This type of Capitalism is thus not as instrumental-rational as Western Capitalism is. Guanxi represents a different framework for a capitalist system and thus is in need of specific institutions to function successfully. In contrast to the 19th century-type Capitalism which superimposed the existing traditional institutions, family structures in particular, to create an environment better suiting for its purpose, Guanxi shows that instead of supplanting traditional structures, it needs to revive them.

Ruan, 1993, p. 93 and Gold, 1985, p. 664.

Ruan, 1993, p. 104f.

Baek, 2000, p. 70.

Yang, Mayfair Mei-hui (2002): ibid., p. 475.

6.2. Guanxi versus corruption It is important to stress the difference between corruption and Guanxi. While the latter emphasizes long-standing relationships and Rénqíng, the first merely emphasizes material exchange, social ties being rather a means than an end. As Guanxi shifts into the business domain it increasingly transforms into structures of corruption. This means, that while Guanxi is a means of ordinary people during the Cultural Revolution, it may now be an instrument segregating them from the wealthy business class. Personal networks established for the purpose of doing business cannot easily be distinguished from networks of corruption, and often they are not. Instrumentalism and consumption orientation replaced personal relationships especially in urban areas.1071 (State) institutions are always prone to exploitation by officials and corruption.1072 An official definition of corruption can be said to be ―the use of public office for private gains‖, among similar ones.1073 What actually is considered as corruption depends strongly on the informal and formal rules of a society. The term ‗corruption‘ underlies the Western understanding of a clear separation between state and society and between office and person, which does not apply in this clarity to China. Interpersonal connections are seen as ‗public‘ phenomena and therefore regulated and closely monitored by the moral principles of society. Because of that, instrumentalizing personal relations for individual aims does not reflect a divergence of private and public interests, they are rather seen as openly communicated public connections. In addition, the concept of face leads to strong selfregulation: the fear of losing face, accompanied with the thread of exclusion from one‘s network looms large and can be seen as equivalent to legal norms. Even the Chinese discourse on corruption has to be interpreted this way: it has more a didactic character instead of a merely descriptive one.1074 Guanxi, especially in the management literature cited above (see fn 1056), is often reduced to a purely instrumental business phenomenon: ―Guanxi refers to a network of informal interpersonal relationships and exchanges of favors established for the purpose of conducting business activities throughout China and East Asia‖. 1075 On the contrary, the Kammerer; Schauenberg and Senger, 2004, p. 178f.

Schramm and Taube, 2001, p. 2f.

Bardhan, 1997, p. 15. Transparency International defines corruption as ―the abuse of entrusted power for private gain. This definition encompasses corrupt practices in both the public and private sectors. The Corruption Perceptions Index (see below) ranks countries according to the perception of corruption in the public sector. The CPI is an aggregate indicator that combines different sources of information about corruption, making it possible to compare countries‖. Information taken from Transparency International Website, accessed 2 January 2011.

Herrmann-Pillath, 2000, p. 110f.

Zhang and Zhang, 2006, p. 375.

art of Guanxi in the form of gift exchange is necessarily tied to a pre-existing relationship between giver and recipient and differs from bribery. Although Guanxi often touches the edges of corruption, it is more subtle and less instrumental than bribery would be. The difference between gift and bribe is mostly depending on the manner of giving, if the rules of giving are not followed, the gift might be devalued and its intention turned negative.1076 In bribery, transactions are only tied to social relations for economic purposes. If in giving gifts the motive of getting something in return is getting too obvious, the gift may get interpreted as bribe. Even though the instrumental purpose is the reason for engaging in Guanxi it is essential that it does not appear that way. For corruption, a connection is only established for the purpose of bribing, whereas for Guanxi an already existing relationship is mandatory before gifts are exchanged, which raises the exchange to a higher plane. In other words, it has to be apparent that people engaging in the negotiations share strong Gãnqíng.1077 ―Guanxi is based on reciprocity […], where one does favors for others as ‗social investments‘, clearly expecting something in return. It is not a cold exchange, but is intertwined with Rénqíng‖.1078 This distinction is essential for doing business because bribery is not accepted, even among entrepreneurs. Thus, gifts are given in form of banquets or other complaisances proving the Gãnqíng element of the connection. The giving of money is avoided because this would constitute bribery, but as long money does not actually change hands, everything is fine. 1079 Additionally, in practicing Guanxi the relation to the recipient is seen as long-term connection which creates not only obligations but also a degree of trust essential for doing business together. Bribery would not offer this advantage. Businessmen prefer to deal with people with whom they share an identity and have a long-standing relationship, e.g. in the context of the family or with former classmates. This prevents them to be dependent on corrupt officials and thus minimizes the expenses without loss of face.1080 The latter is especially important because only those with the reputation to have a lot of miànzi are also endowed with great networks and thus are worthwhile doing business with.1081 Gifts or banquets serve as creation and expression of public emotions (Rénqíng) and therefore are not private. Thus, if a businessman wants it to be clear that he is engaging in Guanxi, the relationship has to be of more importance than the instrumental goal connected Mauss, 1966, p. 36 and Lovett; Simmons and Kali, 1999, p. 234.

Smart, 1993, p. 397ff., Yang, 1999, p. 107f., Yang, 1994, p. 52, 63.

Gold, 1985, p. 659f.

Smart, 1993, p. 400.

Hamilton; Zeile and Kim, 1990, p. 122.

Smart, 1993, p. 402.

with the gift. The pre-determined etiquette has to be followed; otherwise the exchange will be regarded as bribe. Thus, gifts are given in form of ample banquets or other complaisance proving the Gănqíng element of the connection. 1082 Public expenditure for such occasions follows ethical norms and is adequate in the sense that there are no clear boundaries to the outside and therefore no obvious criteria of legitimacy. Different rules apply to people within the network (in-group-members, zìjǐrén 自己人) and outside the network (out-group members, wàirén 外人).

It is therefore difficult to classify certain transactions between state officials and entrepreneurs as corrupt as they are taking place within Guanxi networks and therefore play by different rules. In turn, this does not imply that corruption and outright illegal transactions do not exist, but the grey area of corruption is understood in a different way in the Chinese context.1083 Thus, corruption in China can be seen as less destructive as elsewhere.1084 Hence, ―social relationships built on gift exchange provide a substitute form of trust that can improve the profitability of investment and reduce the risk of arbitrary bureaucratic interference that is not in the interests of the investors‖.1085 It mobilizes cultural values such as obligation and reciprocity to pursue ―both diffuse social ends and calculated instrumental ends", substituting for the not yet existing and complementing already existing market mechanisms.1086 Still, ―the line between obligatory giving, flattery, gifts, and bribery blurs on occasions when calculation is prominent in people‘s minds‖.1087

6.3. Guanxi from a gender perspective The ‗comeback‘ of Confucian values in the Chinese society, as analyzed in chapter 4, can also be discussed from different perspective. As outlined above, the traditional Confucian culture is built upon harmony, consent and stability. In addition to these three main principles, Confucian values like trustfulness, sincerity, loyalty and humaneness are used Hamilton; Zeile and Kim, 1990, p. 122ff.

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