J Bioecon DOI 10.1007/s10818-011-9118-9 Guanxi: Personal connections in Chinese society Bingyuan Hsiung © Springer Science+Business Media, LLC. 2011 Abstract Guanxi is known to be an important feature of Chinese society, and while studies of the subject are voluminous, the present study attempts to explore two critical aspects that tend to be neglected. First, previous studies have mostly dealt with guanxi in business activities, but we analyze the meanings of guanxi in the context of ordinary people. More importantly, even though guanxi has routinely been attributed to Confu- cianism, it begs the more fundamental question of why Chinese society has developed Confucianism and why the latter has become the dominant ideology over the centuries. We provide a plausible account of this important question from both sociological and economic perspectives. Secondly, we illustrate the general implications of guanxi in Chinese society, in particular relating guanxi to the development of democracy and of the rule of law. Consequently, its significance in Chinese society is actually more important than what has been suggested in the literature. Finally, we present some preliminary empirical evidence, based on survey results, of the importance of guanxi in contemporary Chinese society. Keywords Guanxi · Tools · Familial relations-guanxi nexus · Five cardinal virtues JEL Classification O53 · O29 · P49 B. Hsiung (B) School of Business Management, China University of Technology, Taipei, Taiwan e-mail: [email protected] B. Hsiung Zhejiang University, Zhejiang, People’s Republic of China 123 B. Hsiung 1 Introduction Guanxi is known to be an important feature of Chinese society and it has many fac- ets.1 One important feature of guanxi is that it is closely related to family. A popular Chinese idiom captures its spirit vividly: “Count on your parents while at home, and count on your friends while away from home.” This suggests clearly that guanxi is intimately related to family, kinship, ethnic and other personalistic relations, as all of these interpersonal relations involve trust and cooperation beneficial to the individuals involved. Since familial relations have an important biological ingredient and guanxi, as will be argued below, is an extension of familial relations, guanxi has an important biological ingredient at its roots as well. The present study, however, will not take a biological approach to guanxi, at least not directly. Instead, the aim of the present inquiry is to explore its cultural aspects by employing the analytical perspectives of both economics and sociology. The intellectual interest of such an inquiry needs elaboration. To begin with, both sociology and economics are behavioral sciences, and both study human behavior and social phenomena. The two disciplines, however, have very different conceptions of human beings, the basic unit of analysis for both disciplines. For economists, the homo economicus is a physical and biological unit, defined by the flesh and blood of the creature. By contrast, for sociologists, human beings are to a very large extent defined by social relations. This means that in economics human beings are a physi- cal/biological construction; but in sociology, human beings are a social construction. The two very different conceptions evidently lead to different analyses of social phe- nomena, and needless to say each has its own strengths and weaknesses. Concerning the focus of the present study, guanxi in the Chinese society, the two conceptions will provide different perspectives, based on the conceptions of homo economicus and the social person, and the contrast is likely to illuminate not only the subject matter but also the characteristics of economics and sociology, methodological and otherwise. Moreover, the subject of guanxi is challenging and interesting in itself. As China (the People’s Republic of China, PRC) has become the second largest single economy in the world, studies of Chinese society are important both theoretically and practically. As it happens, the major communities within Chinese society, i.e., China, Hong Kong, and Taiwan, have been on different trajectories over the past few decades.2 They are now situated in different stages of economic, social, political and legal development, and assume different configurations, so to speak. Guanxi is universally known to be an important feature of the Chinese society,3 and an in-depth inquiry into this feature will 1 Luo (1997, p. 43) begins his article by stating that, “Guanxi is one of the major dynamics in the Chinese society, where business behavior revolves around guanxi.” 2 There are other Chinese communities such as the overseas Chinese in Southeast Asia and elsewhere, and guanxi is important to all of these Chinese communities. But China, Hong Kong, and Taiwan are three entities with different political and legal institutions and as this Chinese triangle is more relevant to the issues of democracy and rule of law, the discussion will focus on these three Chinese communities. See the analysis below. 3 Guanxi has many implications, and Fan (2002) suggested a detailed classification of various defini- tions and interpretations. Concerning the origin of guanxi, however, it was only mentioned in passing that, 123 Guanxi help one to understand Chinese society in general and the different Chinese commu- nities in particular. A few issues suffice to show the potential relevance. For instance, does guanxi have the same importance in China, Hong Kong, and Taiwan? Or is it dif- ferent in these three Chinese regions?4 What is the impact of economic development onguanxi, in terms of both economic activities and the lives of ordinary people? Will the impact be different for business activities and the lives of ordinary people? Moreover, among Chinese social scientists, it has been suggested that Chinese soci- ety is different from the West; therefore, to study Chinese society a separate, indigenous set of analytical frameworks and concepts is needed.5 The appropriateness of this view is beyond the scope of the present paper; the present paper employs generally accepted analytical tools of mainstream economics and sociology (of the West) to analyze the subject of guanxi within Chinese society. If the inquiry turns out to be unsatisfactory, then it may suggest that the current mainstream (Western) theories are wanting and may even help pinpoint their blind spots when analyzing Asian society and economy. Finally, previous studies of guanxi in Chinese society are voluminous, but the pres- ent study attempts to explore two neglected aspects of the subject. First, previous studies on guanxi have mostly dealt with guanxi in the context of business activities,6 but the present paper will analyze the meanings of guanxi in the context of ordinary people. More importantly, while previous studies have routinely attributed the origin ofguanxi to Confucianism, it begs the more fundamental question of why the Chinese society has developed Confucianism in the first place and why the latter has become the dominant ideology that has influenced the Chinese people over the centuries.7 Interestingly and curiously, this important issue seems to have mostly escaped the attention of previous studies. Secondly and equally important, the present paper will try to derive the general implications of guanxi in the Chinese society; in particular, relating guanxi to the development of democracy as well as the rule of law. That is, by analyzing the issue of guanxi in Chinese society, the present study will argue that guanxi is actually more important than has been suggested in the literature. In analyzing guanxi the present study will focus on three simple questions: What is guanxi in Chinese society? Why has guanxi become so important in Chinese society? What will guanxi become in the Chinese society of the future? The three questions Footnote 3 continued “Guanxi is considered as a unique Chinese construct (The Economist, 8/4/2000) and a product of Confucian values and the contemporary political and social-economic systems” (p. 553). 4 Fan (2002, p. 556) states that, “There is no B2G guanxi network that is not tinted by corruption and no corruption without using guanxi.” B2G means business to government. Alternatively, Davies et al. (1995, p. 210) argued that, “They [Hong Kong Chinese business executives] almost unanimously (98%) confirmed that ‘personal connections with local Chinese organizations’ were a highly rated factor in their business life.” Alon (2003) contains many relevant discussions. 5 For instance, Hwang (2005) analyzed the debate concerning the development of indigenous psychology. See Nathan (1993) for a related discussion concerning the methodological issues involved. 6 See, for example, Chung and Hamilton (2001) discussing how the logic governing personal relations is extended to business relations; Davies et al. (2003) analyzing how guanxi is related to business practices in the PRC; Grainger (2003) exploring guanxi in the PRC’s hotel sector; Lee (2003) studying how business opportunity is related to guanxi in the PRC. 7 Fei’s work was first published in Chinese in 1948 and hence unavailable to the readers in the West. The influential book was later translated into English by Gary Hamilton and Wang Zheng, published in 1992. 123 B. Hsiung will be dealt with to different degrees in the following analysis, and as will become clear, while some of the arguments are intuitively clear and logically persuasive, they are more like reasoned conjectures. Empirical work will be the focus of subsequent research, and possible directions of such endeavors will be suggested in the follow- ing analysis. Some preliminary results will be presented to support the analysis that follows. 2 Guanxi and the five cardinal virtues In analyzing guanxi in the Chinese society, three questions have been raised: What is it? Why is it? What is it going to become? This section will address the first question, namely what is guanxi in the Chinese society? As is commonly understood, guanxi refers to personal connections or to special bonds in interpersonal networks.