Columbia International Affairs Online: Working Papers

CIAO DATE: 06/2009

Entrepreneurship and Political Guanxi Networks in China's Private Sector

Christopher A. McNally, Hong Guo, Guangwei Hu

August 2007

East-West Center


Since the mid-1990s the Chinese government has rapidly liberalized the environment facing domestic private firms. As a consequence, many private firms have clarified their ownership relations and acquired stronger organizational boundaries. However, despite this formalization of private sector institutions, informal guanxi networks remain a key component in firm success. Most significant among these guanxi networks are political networks that connect private entrepreneurs with actors in China's political sphere. Based on 15 case studies of private firms, two seemingly contradictory trends are emerging in the development of China's private sector. On one hand, legal, political, and market structures are becoming more institutionalized. On the other, the use of political guanxi networks to further firm success remains essential. Three in-depth case studies are presented to examine these trends. The formalization of private sector institutions and the nurturing of political guanxi networks are not contradictory. Rather, formal institutional arrangements are likely to meld with the continued use of guanxi networks, thus lending China's emerging capitalism its unique characteristics.