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

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However, even if an individual entrepreneur dominates her own firm, the relevance and quality of the cluster networks differ from their Chinese counterparts not least because they are based on more formal, contractual relations and social capital, such as membership in business associations, and often also written contracts. This is even more true for the artificially built-up clusters heavily subsidized by the (German) government. However, even where they were not initialized by the state, European industrial districts needed a certain cultural tradition to thrive and often only those are also successful and sustainable in the longer run. Networks require a certain level of mutual trust, reciprocity, altruism, shared values and goals. This often contradicts economic objectives and thus endangers the durability of networks. The relationship of autonomy and dependence in co-operations is sometimes considered to be ‗paradoxical‘. It also means that networks are only viable in a certain context under specific conditions.1609 Some authors even claim that networks are nothing more than huge corporations ―dressed in new costumes and armed with new technology‖.1610 Nevertheless, the success particularly of the Italian districts lies not insignificantly on their high level of innovativeness and the high quality of their products.

By contrast, China still lags behind in the innovativeness of its firms. Even private firms are organized around one patriarch who views the workforce not as potential contributors to the firm‘s innovative capacity but rather as rule followers, complying with established routines. It is a tightly controlled system that gives the individual worker little room to contribute something other than physical work. As a result, China registered only 144 ‗triadic‘ patents that are simultaneously registered in Europe, Japan, United States and which can thus be assumed to be innovative. Additionally, China‘s share of patents registered with the World Intellectual Property Organization in 2000 was merely 1.4 percent. By contrast, Austria, with a population of 8.3 million, registered 282 patents. By 2005, 50 percent of Chinese patent applications came from foreign-owned enterprises and merely one percent Hirsch-Kreinsen, 2002, p. 113, 120.

Harrison, 1994, p. 12.

of Chinese firms had ever registered a patent at all.1611 Simultaneously, the Chinese government encourages plagiarism as an innovation strategy. Recently, the vice minister of the Ministry of Industry and Information Technology has called for the protection of the intellectual property value of fake products (shanzhai), claiming that they also require a degree of innovativeness.1612 In addition to the problem of lack of innovativeness, Chinese society faces the additional difficulties of an aging society, together with the consequences of the one-child policy. Some authors therefore claim that Chinas is ―growing old before growing rich‖.1613 However, in Imperial China the family and traditional structures of society did not yet support the emergence of a Western-type Capitalism guided by a certain spirit. More than a century later, after Western-type Capitalism had taken over most of the world's countries and shaped a global economy dependent on flexible production, exactly those structures proved to be fertile soil for economic development. With globalization, markets and the production system altered; beside large-scale multi-national corporations also small firms are extremely successfully in this environment of rapid changes in demands and niche products. The success of the Chinese economic system can in no small part be attributed to global tendencies that favored subcontracting to small firms. The Chinese private sector fits perfectly into this institutional framework, since its firms are able to change products and the mode of production very quickly. They gain access to markets and supplies with the help of personal relationships. The networks of privately-owned firms revived social techniques and institutions known from the past. Capable of connecting through Guanxi networks, these firms are both highly flexible and extremely successful low-cost producers. This fits with the Chinese tendency to only do business with people they know or to whom they are related. If entrepreneurs in the same business are in a dense network together, rather than competing each other they will support each other, exchanging resources and know-how. The unique Chinese culture and history enabled individuals to become entrepreneurs, and in spite of a very difficult domestic political environment they were immensely successful, first and foremost in labor-intensive sectors such as textiles or toys. Traditional institutions such as Guanxi and the accompanying social rules and restrictions added to their accomplishments. Guanxi is "a historically evolved regime of kinship and ethnic power" that has been formed during the process of change of the economic system in the Chinese society. Its dense networks allowed it to react flexibly and take on masRedding and Witt, 2007, p. 218f.

Song, 2010, accessed 2 January 2011.

Redding and Witt, 2007, p. 232f.

sive risks, which were buffered by the supporting and sanctioning mechanism of the networks.1614 Kinship networks not only serve as shelter to protect private property, but additionally provide information on supplies or business opportunities. All in all, networks ―lower entry barriers and raise the survival and success rates of private entrepreneurs‖.1615 It complements Western institutions and thus forms a specific type of Capitalism based on Guanxi. The reality of an increasingly flexible global economy favors not only mass production, but even more so subcontracting and small-business production, which is most effectively done in cities that create clusters of production for certain products, as for example in Wenzhou for shoes or lighters.

In contrast to their German counterparts, Chinese entrepreneurs do not form a class, or bourgeoisie. Besides being rich, they do not build a shared identity and hence, formal social capital (like membership in business associations) is far less important than informal social capital, not least because they come from extremely diverse backgrounds. Informal social capital manifests itself in bilateral connections to local officials, one of the most important factors for the private sector in China. This relationship is shaped by shared motivation and aims which are mutually intertwined and result in a partnership in which both sides gain. Although entrepreneurs are often seriously discriminated against by the (local) government, they still do not seem to seek political change in general. By contrast, intellectual, economic and political elites increasingly merged since the 1990s, led by the thought that market economy and a totalitarian state actually are an advantageous combination, and all that matters is economic development. Authoritarian control can thus at the same time obey the global convention of ‗rule of law‘ and the logic of Guanxi. It is a means of linking the demands of the market with that of political control.1616 The ‗new rich‘ found various coping strategies to evade disadvantages and thus a way to be successful in business while also achieving a reputation in their network and community. Hence, like their European equivalents, they follow a strict cultural code, in their case the rules of Guanxi. As Guanxi is not a business but societal phenomenon, this might also explain their hesitant attitude towards more formal co-operation with other entrepreneurs.

This proves again that the importance of kinship relations for individuals was not diminished by the Chinese transformation towards Capitalism. Still, individuals ―find their place between a succession of ancestors and future generations‖. Guanxi extended to incorporate also quasi-kinship and became thus a ―more general an open-ended structure of Ong, 1999, p. 116f.

Yang, 2002, p. 466ff. Quote from Peng, 2004, p. 1059.

Michelson, 2007 p. 357.

Guanxi networks‖, organized around the individual.1617 It has been argued that five core elements of the Chinese culture constitute the Chinese individual. These are the significance of the relationship between father and son, strong gender segregation, having a large family, a specific education system and powerful parental authority.

Although individuals are still embedded in their personal relationships and view themselves only in relations to others, be it family or the more extend social network, there is also a process of individualization within the Chinese society. The Chinese individual is divided into a small self and a great self, the first concerned with personal interest, the second directed towards national interest. Chinese individual actors define themselves not as autonomous, but in relation to a social group. In contrast to a similar process in the Western world, it is process that is led by the party-state and is not necessarily aimed towards a democracy, political liberalism, or a more advanced welfare state.1618 Still, the changes to the socio-economic system in China led towards an ‗enterprising self‘ who is more calculating and pro-active, an attitude mostly found among the younger generation.

They are autonomous and responsible individual actors who at the same time can also be patriotic or even nationalistic, and identify with the party-state. They are also selfcontrolled in the sense that for example the owners of Internet cafés support the control and censorship of the Internet users in order to stay in business, although these businesses are already privatized. Individualization in China is more equal to a re-defining of the relationship between the individual and the party-state without contesting the political system, rather than to a change in the relationship between individual and society as in Western Europe.1619 However, the strong emphasis on the family is an obstacle for the development of a civil society in the Western sense. China seems also not to head towards a middle-class, bourgeois society, but is highly polarized, which also means that it is potentially also a ‗high-risk society‘.1620 The articulation of legitimate interests in China was traditionally very difficult, since Chinese rulers mostly believed that different regions should not have different interests. All regions within China, no matter how diversified, were supposed to follow the same goals and have the same interests and trust their leader to act in their best interest. China in that sense did not develop a mature political economy and hence no Yan, 2009, p. 90.

Western individualization theory highlights detraditionalization, institutionalized disembedding and reembedding, pursuit of a ‗life of one‘s own‘ and an internalization of risks due to the precarious freedoms and uncertainties that the individual is facing. Yan, 2010, p. 509.

Hsu, 1948, Yan, 2010, p. 493f., 504f., 509f., Yan, 2009, p. 290.

He and Reisner, 2006, p. 449f.

strong civil society. Despite recent economic development, very few interest groups exist.

The existing associations and organizations are part of the party-state and are not in opposition to it. This form of state corporatism is however a political culture with some tradition in China.1621 Although the CCP opened up towards private entrepreneurs, and also enacted private sector-friendly legislation which allowed some pluralization and institutionalization to take place, it still keeps its rules and laws opaque, giving a lot of power to local state officials.

Autonomous institutions outside the party-state, such as an independent judiciary, still hardly exist. This forces private entrepreneurs to navigate semi-legal gray areas if they are to be successful in business, which in turn gives the state the opportunity to accuse a businessman of infringement at its will. This protects the state from political opposition by economic elites.

Additionally, Guanxi networks are a tool to facilitate interaction with a bureaucratic state. It is also complementary to the formal legal system established by the central government and is still better suited to guarantee the enforcement of contracts, because moral principles are regarded as more influential than legality. In China, networks are seen as long-term reciprocal alliances to access information and resources, like bank loans or supplies. They are especially a means to navigate in unstable political and economic surroundings, supporting the flexibility of small firms.

9.3. A new type of Capitalism? Towards a definition of Guanxi Capitalism

–  –  –

This dissertation argued that Chinese economic system is network-based and thus differs qualitatively from Western Capitalism.1622 This work therefore focused on the private sector and the relevance of Guanxi within it. However, it was emphasized that although Guanxi is employed in the entire Chinese economic system, it is most significant for private enterprises. The private sector itself is also not homogenous, but works differently from region to region and/or sectors. Even taking this into account, some common tendencies can be found in the entire economy. Rather than being bifurcated into a statecontrolled economy and a private economy, each adhering to their own set of rules, the Pye, 1995, p. 42.

McNally, 2010, p. 2f. I am grateful to Christopher McNally for making this manuscript available to me.

Chinese economic system is more a continuum of varieties that together result in a specific Chinese type of Capitalism. However, economic data shows that the private sector is the driving force behind the development process.

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