Skip to main content
Log in

Can guanxi be a problem? Contexts, ties, and some unfavorable consequences of social capital in China

  • Published:
Asia Pacific Journal of Management Aims and scope Submit manuscript

Abstract

Social capital is generally believed to enhance the effectiveness of organizations in certain cultural contexts. However, even with substantial social capital in place, China, during its economic transition towards market systems in the past decades, witnessed problems stemming from underdevelopment and organizational dysfunction. To address this paradox, we delineate a unique type of networks-based social capital in China: dense strong-ties accompanied by sparse weak-ties. Drawing on extant literature, a conceptual framework is proposed to reveal the dynamics of the unique social capital set-up in the Chinese context: first, a view of how the country’s social capital system was formed under conditions of resource scarcity, and of how it was further modified by its unique Chinese cultural contexts; and second, an examination of how Chinese social capital led to certain unfavorable societal and organizational consequences—namely, market fragmentation, state intervention, and rent-seeking activities. Theoretical and practical implications are discussed.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Figure 1

Similar content being viewed by others

References

  • Acquaah, M. 2007. Managerial social capital, strategic orientation, and organizational performance in an emerging economy. Strategic Management Journal, 28: 1235–1255.

    Article  Google Scholar 

  • Adler, P., & Kwon, S. W. 2002. Social capital: Prospects for a new concept. Academy of Management Review, 27: 17–40.

    Article  Google Scholar 

  • Ahlstrom, D. 2010. Publishing in the Asia Pacific Journal of Management. Asia Pacific Journal of Management, 27(1): 1–8.

    Article  Google Scholar 

  • Ahlstrom, D., & Wang, L. C. 2010. Culture and entrepreneurial capitalism in East Asia: How history matters. In F. Lohrke & H. Landstrom (Eds.). History and entrepreneurship. Cheltenham, UK: Edward Elgar.

    Google Scholar 

  • Amiti, M., & Javorcik, B. S. 2008. Trade costs and location of foreign firms in China. Journal of Development Economics, 85: 129–149.

    Article  Google Scholar 

  • Aquino, K., & Reed, A. 1998. A social dilemma perspective on cooperative behavior in organizations. Group & Organization Management, 23(4): 390–413.

    Article  Google Scholar 

  • Aquino, K., Steisel, V., & Kay, A. 1992. The effects of resource distribution, voice, and decision framing on the provision of public goods. Journal of Conflict Resolution, 36: 665–687.

    Article  Google Scholar 

  • Baker, W. 1990. Market networks and corporate behavior. American Journal of Sociology, 96: 589–625.

    Article  Google Scholar 

  • Bischoff, I. 2007. Institutional choice versus communication in social dilemmas—An experimental approach. Journal of Economic Behavior & Organization, 62(1): 20–36.

    Article  Google Scholar 

  • Blau, P. 1964. Exchange and power in social life. New York: Wiley.

    Google Scholar 

  • Boisot, M. H. 1987. Information and organizations: The manager as anthropologist. London: Fontana/Collins.

    Google Scholar 

  • Boisot, M. H. 1995. Information space: A framework for learning in organizations, institutions and culture. London: Routledge.

    Google Scholar 

  • Boisot, M. H., & Child, J. 1988. The iron law of fiefs: Bureaucratic failure and the problem of governance in the Chinese economic reforms. Administrative Science Quarterly, 33: 507–527.

    Article  Google Scholar 

  • Boisot, M. H., & Child, J. 1996. From fiefs to clans and network capitalism: Explaining China’s emerging economic order. Administrative Science Quarterly, 41: 600–628.

    Article  Google Scholar 

  • Boissevain, J. 1974. Friends of friends: Networks, manipulators and coalitions. Oxford: Basil Blackwell.

    Google Scholar 

  • Burt, R. S. 1992. Structure holes: The social structure of competition. Cambridge: Harvard University Press.

    Google Scholar 

  • Chen, M.-J. 2001. Inside Chinese business: A guide for managers worldwide. Boston: Harvard Business School Press.

    Google Scholar 

  • Child, J. 1998. Trust and international strategic alliances: The case of Sino-foreign joint ventures. In C. Lane & R. Bachmann (Eds.). Trust within and between organizations: 241–272. New York: Oxford University Press.

    Google Scholar 

  • Coleman, J. S. 1988. Social capital in the creation of human capital. American Journal of Sociology, 94: S95–S120.

    Article  Google Scholar 

  • Coleman, J. S. 1990. Foundations of social theory. Cambridge: Belknap Press of Harvard University Press.

    Google Scholar 

  • Collins, R. 1980. Weber’s last theory of capitalism: A systematization. American Sociological Review, 45: 925–942.

    Article  Google Scholar 

  • Dawes, R. M. 1980. Social dilemmas. Annual Review of Sociology, 31: 169–193.

    Google Scholar 

  • Depner, H., & Bathelt, H. 2005. Exporting the German model: The establishment of a new automobile industry cluster in Shanghai. Economic Geography, 81: 53–81.

    Article  Google Scholar 

  • Deutsch, M. 1973. The resolution of conflict. New Haven, CT: Yale University Press.

    Google Scholar 

  • Deutsch, M. 1975. Equity, equality, and need: What determines what value will be used as the basis of distributive justice?. Journal of Social Issues, 31: 137–150.

    Article  Google Scholar 

  • Edelman, L., Bresnen, M., Newell, S., Scarbrough, H., & Swan, J. 2004. The benefits and pitfalls of social capital: Empirical evidence from two organizations in the United Kingdom. British Journal of Management, 15: S59–S69.

    Article  Google Scholar 

  • Edney, J. J., & Harper, C. 1978. The commons dilemma: A review. Environmental Management, 2: 491–507.

    Article  Google Scholar 

  • Fang, T. 2010. Asian management research needs more self-confidence: Reflection on Hofstede (2007) and beyond. Asia Pacific Journal of Management, 27(1): 155–170.

    Article  Google Scholar 

  • Fukuyama, F. 1995. Trust: Social virtue and the creation of property. London: Adamantine Press.

    Google Scholar 

  • Gao, S., Xu, K., & Yang, J. 2008. Managerial ties, absorptive capacity, and innovation. Asia Pacific Journal of Management, 25(3): 395–412.

    Article  Google Scholar 

  • Geertz, C. 1962. The rotating credit association: A “middle rung” in development. Economic Development and Cultural Change, 10: 240–263.

    Article  Google Scholar 

  • Granovetter, M. S. 1973. The strength of weak ties. American Journal of Sociology, 78: 1360–1380.

    Article  Google Scholar 

  • Hitt, M. A., Lee, H.-U., & Yucel, E. 2002. The importance of social capital to the management of multinational enterprises: Relational networks among Asian and Western firms. Asia Pacific Journal of Management, 19(2–3): 353–372.

    Article  Google Scholar 

  • Huang, Y. 2008. Capitalism with Chinese characteristics: Entrepreneurship and the state. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Inkpen, A., & Tsang, E. 2005. Social capital, networks and knowledge transfer. Academy of Management Review, 30: 146–165.

    Google Scholar 

  • Judson, H. F. 2005. The great Chinese experiment. Technology Review, 108(11): 52–61.

    Google Scholar 

  • Kabanoff, B. 1991. Equity, equality, power, and conflict. Academy of Management Review, 16: 416–441.

    Article  Google Scholar 

  • Keister, L. A. 1998. Engineering growth: Business group structure and firm performance in China’s transition economy. American Journal of Sociology, 104: 404–440.

    Article  Google Scholar 

  • Kelly, H. H. 1983. The situational origins of human tendencies: A further reason for the formal analysis of structures. Personality and Social Psychology Bulletin, 2: 8–30.

    Article  Google Scholar 

  • Kenis, P., & Knoke, D. 2002. How organizational field networks shape interorganizational tie-formation rates. Academy of Management Review, 27: 275–293.

    Article  Google Scholar 

  • Kerr, N. L., & Kaufman-Gilliland, C. M. 1994. Communication, commitment and cooperation in social dilemmas. Journal of Personality and Social Psychology, 66: 513–529.

    Article  Google Scholar 

  • Kramer, R. M. 1989. When the going gets tough: The effect of resource scarcity on group conflict and cooperation. In E. Lawler & B. Markovsky (Eds.). Advances in group processes, 7: 151–177. Greenwich: JAI.

    Google Scholar 

  • Kraus, W. 1991. Private business in China: Revival between ideology and pragmatism. London: Hurt.

    Google Scholar 

  • Lee, D., & Tsang, E. 2001. The effects of entrepreneurial personality, background and network activities on venture growth. Journal of Management Studies, 38: 583–602.

    Article  Google Scholar 

  • Li, J. J. 2005. The formation of managerial networks of foreign firms in China: The effects of strategic orientation. Asia Pacific Journal of Management, 22(4): 423–443.

    Article  Google Scholar 

  • Li, J. J., Poppo, L., & Zhou, K. Z. 2008. Do managerial ties in China always produce value? Competition, uncertainty, and domestic vs. foreign firms. Strategic Management Journal, 29: 383–400.

    Article  Google Scholar 

  • Li, Y., & Si, S. 2007. Organizational learning approaches and management innovation: An empirical study in Chinese context. Journal of Current Issues in Finance, Business and Economics, 1(2/3): 1–10.

    Google Scholar 

  • Lin, N., & Dumin, M. 1986. Access to occupations through social Ties. Social Networks, 8: 365–385.

    Article  Google Scholar 

  • Luo, Y. 2000. Guanxi and business. Singapore: World Scientific Publishing.

    Book  Google Scholar 

  • Luo, Y. 2001. Determinants of local responsiveness: Perspectives from foreign subsidiaries in an emerging market. Journal of Management, 27: 451–477.

    Article  Google Scholar 

  • Luo, Y. 2003. Industrial dynamics and managerial networking in an emerging market: The case of China. Strategic Management Journal, 24: 1315–1327.

    Article  Google Scholar 

  • Mead, M. 1963. Sex and temperament in three primitive societies. New York: William Morrow.

    Google Scholar 

  • Messick, D. M., & Brewer, M. B. 1983. Solving social dilemmas: A review. In L. Wheeler & P. Shaver (Eds.). Review of personality and social psychology, 4: 11–44. Beverly Hills, CA: Sage.

    Google Scholar 

  • Mixon, F. G., Jr., & Ressler, R. W. 1998. Integrating the concept of rent seeking into the principles of economics classroom. Journal of Education for Business, 74: 24–27.

    Article  Google Scholar 

  • Moran, P. 2005. Structural vs. relational embeddedness: Social capital and managerial performance. Strategic Management Journal, 26: 1129–1151.

    Article  Google Scholar 

  • Nahapiet, J., & Ghoshal, S. 1998. Social capital, intellectual capital, and the organizational advantage. Academy of Management Review, 23: 243–266.

    Article  Google Scholar 

  • Nelson, R. E. 1989. The strength of strong ties: Social networks and intergroup conflict in organizations. Academy of Management Journal, 32: 377–401.

    Article  Google Scholar 

  • Nelson, R. E. 1997. Organizational troubleshooting. Westport, CT: Quorum Books.

    Google Scholar 

  • Ngo, T. W. 2008. Rent-seeking and economic governance in the structural nexus of corruption in China. Crime, Law and Social Change, 49: 27–44.

    Article  Google Scholar 

  • Ouchi, W. G. 1980. Market, bureaucracies, and clans. Administrative Science Quarterly, 25: 129–141.

    Article  Google Scholar 

  • Park, S., & Luo, Y. 2001. Guanxi and organizational dynamics: Organizational networking in Chinese firms. Strategic Management Journal, 22: 455–477.

    Article  Google Scholar 

  • Peng, M. W., & Heath, P. S. 1996. The growth of the firm in planned economies in transition: Institutions, organizations, and strategic choices. Academy of Management Review, 21: 492–528.

    Article  Google Scholar 

  • Peng, M. W., & Luo, Y. 2000. Managerial ties and firm performance in a transition economy: The nature of a micro-macro link. Academy of Management Journal, 43(3): 486–501.

    Article  Google Scholar 

  • Peng, M. W., & Quan, M. J. 2009. A micro-macro link during institutional transitions. In L. Keister (Ed.). Work and organization in China. Oxford: Emerald Press.

    Google Scholar 

  • Pfeffer, J., & Salancik, G. 1978. The external control of organizations. New York: Harper & Row.

    Google Scholar 

  • Poncet, S. 2005. A fragmented China: Measure and determinants of Chinese domestic market disintegration. Review of International Economics, 13: 409–430.

    Article  Google Scholar 

  • Putnam, R. D. 1995. Bowling alone: American’s declining social capital. Journal of Democracy, 6: 65–78.

    Article  Google Scholar 

  • Ren, B., Au, K. Y., & Birtch, T. A. 2009. China’s business network structure during institutional transitions. Asia Pacific Journal of Management, 26(2): 219–240.

    Article  Google Scholar 

  • Reuters. 2005. China environment chief resigns over toxic spill. Reprinted in UNEP, The environment in the news. Dec. 5, 2005.

  • Si, S., & Bruton, G. D. 2005. Knowledge learning, cost economizing, and competitive positioning: IJV motivation in emerging economies. Journal of Business Research, 58: 1465–1473.

    Article  Google Scholar 

  • Si, S., & Hitt, M. 2004. A study of organizational image resulting from international joint ventures in transitional economies. Journal of Business Research, 57: 1370–1377.

    Article  Google Scholar 

  • Si, S., Wei, F., & Li, Y. 2008. The effect of organizational psychological contract violation on manager’s EVNL. International Journal of Human Resource Management, 19: 933–946.

    Google Scholar 

  • Stack, C. B. 1974. All our kin: Strategies for survival in a black community. New York: Harper & Row.

    Google Scholar 

  • Tjosvold, D., & Poon, M. 1998. Dealing with scarce resources. Group & Organization Management, 23: 237–255.

    Article  Google Scholar 

  • Tsang, E. W. K. 1998. Can guanxi be a source of sustained competitive advantage for doing business in China?. Academy of Management Executive, 12: 64–73.

    Google Scholar 

  • Tullock, G. 1967. The welfare costs of tariffs, monopolies, and theft. Western Economic Journal, 5: 224–232.

    Google Scholar 

  • Tyler, T. R., & Kramer, R. M. 1996. Whither trust?. In R. M. Kramer & T. R. Tyler (Eds.). Trust in organizations: Frontiers of theory and research: 1–15. Thousand Oaks, CA: Sage.

    Google Scholar 

  • Walter, J., Lechner, C., & Kellermanns, F. W. 2007. Knowledge transfer between and within alliance partners: Private versus collective benefits of social capital. Journal of Business Research, 60: 698–710.

    Article  Google Scholar 

  • Wank, D. L. 1999. Commodifying communism: Business, trust, and politics in a Chinese city. New York: Cambridge University Press.

    Google Scholar 

  • Weber, M. 1946 (1922). From Max Weber: Essays in sociology. New York: Oxford University Press.

  • Wilkins, A., & Ouchi, W. G. 1983. Efficient cultures: Exploring the relationship between culture and organizational performance. Administrative Science Quarterly, 28: 468–481.

    Article  Google Scholar 

  • Woolcock, M. 1998. Social capital and economic development: Toward a theoretical synthesis and policy framework. Theory & Society, 27: 151–208.

    Article  Google Scholar 

  • Wu, W., & Choi, W. L. 2004. Transaction cost, social capital and firms’ synergy creation in Chinese business networks: An integrative approach. Asia Pacific Journal of Management, 21(3): 325–343.

    Article  Google Scholar 

  • Wu, W., & Leung, A. 2005. Does a micro-macro link exist between managerial value of reciprocity, social capital and firm performance? The case of SMEs in China. Asia Pacific Journal of Management, 22(4): 445–463.

    Article  Google Scholar 

  • Xiao, Z., & Tsui, A. 2007. When brokers may not work: The cultural contingency of social capital in Chinese high-tech firms. Administrative Science Quarterly, 52: 1–31.

    Google Scholar 

  • Xin, K. R., & Pearce, J. L. 1996. Guanxi: Connections as substitutes for formal institutional support. Academy of Management Journal, 39: 1641–1658.

    Article  Google Scholar 

  • Zhang, S., & Li, X. 2008. Managerial ties, firm resources, and performance of cluster firms. Asia Pacific Journal of Management, 25(4): 615–633.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Jun Lin.

Additional information

The authors are in alphabetical order.

We thank Reed Nelson for his comments on an earlier draft of this paper. We also gratefully acknowledge the help and guidance of Editor David Ahlstrom in shaping this paper.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Lin, J., Si, S.X. Can guanxi be a problem? Contexts, ties, and some unfavorable consequences of social capital in China. Asia Pac J Manag 27, 561–581 (2010). https://doi.org/10.1007/s10490-010-9198-4

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10490-010-9198-4

Keywords

Navigation