The Guanxi System

Part of the Contributions to Management Science book series (MANAGEMENT SC.)


The guānxì system contains “both cultural and structural elements” (Chen JJ 1998: 106). This chapter will therefore address guānxì as a cultural phenomenon (Section 2.1), and it will provide a detailed analysis of the structure of its sociologic elements (Section 2.2). For methodological reasons (see above), the cultural embeddedness argument will not be presented in great depth;13 rather, guānxì is treated as a cohesive (socio-economic) ex-change system. The structural factors behind guānxì will then be processed in Section 2.3, in order to allow for integration into a competitive environment in Chapter 3.


Social Capital Chinese People Network Member Exchange Resource Exchange Partner 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


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    For a detailed account of the embeddedness of economic behavior, see Granovetter (1985: 482).Google Scholar
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    Hui and Graen, for instance, assume that “the specific role definition of wulun” (2000: 454) explains why guānxì has emerged as the infrastructure of Chinese society.Google Scholar
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    According to van Ess (2003a: 7f.), these four eras of Confucianism are (1) Confucius’ lifetime until 300 BC; (2) 300 BC through 1000 AD; (3) 1000 through 1911; and (4) and the period since 1911.Google Scholar
  4. 16.
    The Master’s family name is Kong (Open image in new window) and his personal name is Qiu (Open image in new window). He owes his well-known Latinization, Confucius, to the translation of Kongfuzi (Open image in new window) that was not actually used in classical texts, but was introduced by Jesuit missionaries in the 12th century AD (van Ess 2003: 1; van Norden 2002: 32).Google Scholar
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    Warring States was a period of debate among various philosophical movements, hence the concurrent name for the period: “100 Schools of Thought” (Open image in new window, van Norden 2002: 7; Bell/Chaibong 2003: 25).Google Scholar
  6. 18.
    Only once was Confucius appointed to an executive position (in 505 BC) as Minister of Crime (Open image in new window) for the state of Lu, a post from which he resigned in 492 BC for unknown reasons (van Norden 2002: 11). However, Sima Qian’s outline depicting Confucius as a “loser” is not unproblematic, for its objectivity cannot be ensured. Sima Qian may actually have been much more open to Taoist ideas than to Confucianism (van Norden 2002: 7).Google Scholar
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    Following van Norden (2002: 20), Joseph Chan (2003: 236), and many others, “benevolence” shall be considered an acceptable translation.Google Scholar
  9. 22.
    The application of xiào to a political sphere of rén is termed zhōng (Open image in new window): “What is left to be done is simply the extension of [loving one’s parents] to the whole Empire” (van Norden 2002: 27). Confucianism teaches that the supreme virtue in relationships is the subjects’ loyalty towards the ruler. Holding the Mandate of Heaven (Open image in new window), this ruler is at the top of a hierarchy of officials who should rule through enlightened civil service. The political sphere will not be further discussed because it is not of interest in this context.Google Scholar
  10. 23.
    In the political arena, the obedience of subjects is mediated by righteousness, (Open image in new window), which was explicitly combined with rén only by Mencius. In an early definition, is the quality of an action that makes it appropriate; appropriateness was determined not only by the circumstances of one’s situation but by one’s relevant social role. The ruler is obliged to show benevolence for his subjects. Since it is in the nature of things that only few persons can attain a high position in the hierarchy, the ruler shall also be a shining example for every man from top to bottom (van Norden 2002: 21).Google Scholar
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    Here, Coleman draws on the thoughts of Weber, who maintains that “it is essential to include the criterion of power of control and disposal (Verfügungsgewalt) in the sociological concept of economic action.” Economics, even in theories as recent as New Institutional Economics, follow the tradition of assuming interaction among equals (Smelser/Swedberg 2004: 5) when they replace power of control and disposal with property rights that are explicitly based upon a system of legally enforced rights.Google Scholar
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    The assumption of a rational choice principle of action is in line with Fei Xiaotong’s understanding that actors are egocentric and all of their values are oriented to serving various needs (see Section 2.2.3). For a general criticism of this assumption, see Triandis (1999: 137ff.)Google Scholar
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    Yang MH also applies to rénqíng Pierre Bourdieu’s (1977: 176ff.) division of social capital—a concept that will not be used in this analysis (see Section 2.3). She concludes that guānxì exchanges entail gifts, symbols, office resources, and political resources that are converted from one form to another at different stages. Since Yang’s argument is not convincing, her idea shall not be further discussed. Yet, the exchange of symbols will become relevant in a different context (see Section 2.2.6).Google Scholar
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    Bian (1994) describes the importance of using guānxì in acquiring jobs in cities: “Because of a lack of advertising and formal hiring procedures, guānxì became the predominant means of channeling individuals into work units. People used their guānxì to solicit employment information, to create application opportunities and to influence informal screening.”Google Scholar
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    According to Feng Tianli (2002: 40), pure information exchanges decrease over time. Feng’s argument is based on Bian and Zhang’s (1999) analysis of information rénqíng exchanges in China’s labor market They found that the transfer of information in the guānxì system decreased in the period 1956–1999 (pure information by 5% to 19%, and information in combination with other forms of rénqíng by 10% to 38%).Google Scholar
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    The amount of cash varies as a function of the region, period, and the closeness of the relationship (Yang MZ 1995: 42).Google Scholar
  29. 52.
    Liu Linping (2002: 240, 249) explains that gambling is popular in China, because life often is boring (Open image in new window), because time needs to be killed (Open image in new window), and because husband and wife can go gambling together (Open image in new window).Google Scholar
  30. 54.
    A common way of introduction is for interested businessmen to ask for an arrangement “to become friends with the PR lady” (Open image in new window, Jiang X 2001: 58).Google Scholar
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    For the relationship between the guānxì system and the story of Xi Shi (Open image in new window), one of China’s ancient Four Beauties, see Zhong (1995: 61ff.).Google Scholar
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    For the creativity required in gift-giving, see also Chen Junjie (1998: 196).Google Scholar
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    Gănqíng may also be interpreted more broadly as emotion or sentiment, i.e. “strong psychological response to external stimuli” (Ci Hai 2003).Google Scholar
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    For situations that involve uncertainty for both parties, which will not be further investigated here, see Coleman (1990: 177ff.).Google Scholar
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    The term taxonomy is being applied here because the following sets of configurations, i.e. “any multidimensional constellation of (...) characteristics that commonly occur together” (Meyer et al. 1993: 1175), are empirically derived. If the following sets of configurations had been conceptually derived, they would be typologies (Meyer et al. 1993: 1182).Google Scholar
  37. 67.
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    The notion (Farh et al. 1998: 474) that Chinese people group according to the birthplace of their father’s ancestors has not been supported by empirical evidence; moreover, the local dialect of the father’s ancestors may differ from the local dialect in which the child was raised.Google Scholar
  39. 70.
    Chen Junjie’s (1998: 113) suggestion to refine this classification of guānxì partners according to depth, closeness, and quality does not yield any additional insights for this RCT framework, and therefore shall be neglected.Google Scholar
  40. 72.
    Note that Yang Meihui (1989: 171) does not distinguish between rénqíng and gănqíng as sharply as this analysis does. She goes on to say that a consequence of the rising instrumentality of guānxì (i.e. commoditization) is that the system becomes increasingly masculine. In fact, a 1999/2000 survey in Shanghai by Leung (2000: 51ff.) confirms that men tend to engage in guānxì more than women do.Google Scholar
  41. 73.
    In a different context, Luo (2000: 6) contradicts himself, however, by stating that “without ganqing, guanxi is more distant and less reliable”, which implies that gănqíng is not required.Google Scholar
  42. 74.
    According to Kipnis’s statement, both terms “are often interchangeable” (1997: 23). Although Coleman’s sociological theory does not allow this equation in the analysis of guānxì exchanges, Kipnis’s statement supports the importance of gănqíng in the guānxì system.Google Scholar
  43. 75.
    Hwang (1987: 949), however, also allows for exchanges of purely instrumental and purely affective resources in the guānxì system. The assumption of mixed exchanges is actually an anticipation of the emergence of norms (Section 2.2.5).Google Scholar
  44. 76.
    Taking a relational perspective, Chung and Hamilton (2002: 4) predict that guānxì is strongest and most stable “if all [dimensions] are aligned in the same direction.”Google Scholar
  45. 78.
    For an example showing that rénqíng and gănqíng are imperfect substitutes for one another, see Tang Jinsu (1998: 128).Google Scholar
  46. 80.
    Note that “in an economic sense, guanxi networks are a cultural-specific form of ‘clans’” (Hermann-Pillath 1994: 282).Google Scholar
  47. 84.
    The classic example for transferred promises, first investigated by Bronislaw Malinowski (1922), is the exchange circle of Kula islanders. In this structure, promises are handed in the form A-B-C-D-A, while resources run A-D-C-B-A.Google Scholar
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    Although Coleman apparently does not use the term social network metaphor, his influential conception would probably not exist without this network modeling component. For recent research on the synthesis of network theory and sociological concepts using a social network metaphor, see Davern (1997: 288ff.); for an overview of how social network analysis has developed, see John Scott (1991: 7ff.)Google Scholar
  51. 90.
    The term guānxìhù is not restricted to individuals: it may refer to organizations (Ci Hai 2003).Google Scholar
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    As an example witnessed by the author in the Chinese railway industry shows, such a letter need not be formal: a director of the Ministry of Railways had simply signed his name and written two cell phone numbers on a napkin, which in fact opened the door to the Ministry’s license department. Perfectly in line with this anecdote, the magazine Passport China (June 30, 1996; similarly: Li/Labig 2001: 345ff.) recommends the following to foreign negotiators: “If you have friends (...), ask them to write a letter introducing you (...), explaining the reasons for your visit and providing an itinerary. As a next step, you should write to request an appointment. If you do get a meeting, bring an additional letter of introduction from your friend that affirms your character.”Google Scholar
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    For details on trust intermediaries—consultants, guarantors, and entrepreneurs—see Coleman (1990: 232ff.).Google Scholar
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    Note that it is regarded as “improper and indeed unthinkable” (Yan 1996a: 16) to resort to an outsider if a network member is capable of assisting.Google Scholar
  55. 97.
    Similarly, Schramm and Taube (2001: 7f.) state that the connection that enlarges the guānxì network is frequently established by giving gifts. Such dynamics can also be analyzed with Petri nets (Rosenstengel/Winand 1982: V), Petri nets are a tool for modeling processes; they are named after their developer, Carl Adam Petri from the Faculty of Sociomatics at the Technical University of Hamburg.Google Scholar
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    This treatment using the four criteria (frequency of interaction, degree of emotions, intimacy, and reciprocation actually) goes back to Granovetter’s “The Strength of Weak Ties” (1973).Google Scholar
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    In this context, Coleman (1990: 242) draws an analogy to the Indian concept of dharma.Google Scholar
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    It is for this reason—i.e. the presumption that individual ties are predetermined through Confucianism—that Hwang’s (1987) well-elaborated scheme produces merely a partial understanding of the guānxì system.Google Scholar
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    The necessity of such an approach is disputed. Many scholars do not formally raise the question of the nature of the mechanisms required to start such a system. In his best-known article, Alvin Gouldner (1960) elaborates on the norm of reciprocity and its role in social systems. He takes, as he acknowledges, the “usual perspective of functional theory” (Gouldner 1960: 177) that focuses on established social systems and on the mechanisms by which they maintain themselves. While for individuals the norm may be seen as a “starting mechanism” because it helps to initiate social exchanges, the beginnings of such a social system are not addressed by Gouldner.Google Scholar
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    Exactly the opposite is claimed by Day (2002: 85), who states that “no formal accounting (...) is maintained.”Google Scholar
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    There is isolated disagreement. Huang Yuqin (2002: 90) states that in China, “persons of lower status traditionally do not need to reciprocate gifts received”; status, however, is likely not to refer to family but to the wider social context. Similarly, Luo (1997: 44) believes that in guānxì, often the weaker transaction partner is favored.Google Scholar
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    Note that Gouldner (1960: 171f.) expected the norm of reciprocity for different groups of social actors to vary across cultures.Google Scholar
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    Gouldner (1960: 176) already supposed the existence of such a convention in social systems: “We should also expect to find mechanisms which induce people to remain socially indebted to each other and which inhibit their complete repayment. This suggests another function performed by the requirement of only rough [see above] equivalence of repayment that may be involved in one of the norms of reciprocity.”Google Scholar
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    Michailova and Worm (2003: 10) argue that the maintenance of guānxì itself would be the reason not to reciprocate immediately because “continuity of relationships is a precondition for the existence of (...) guanxi.” Herrmann-Pillath (1997: 11) points out—though without providing convincing arguments—that reciprocity alone would ensure the long-term stability of the guānxì system. In their comparative macroeconomic analysis, Lovett et al. (1999: 236) find that, by prescribing long-term patterns of behavior, appropriateness in the guānxì system involves a “large perspective”.Google Scholar
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    Coleman (1990: 250f.) explains that the emergence of the need for a norm requires several conditions to be met, among which the most important ones are (a) the existence of external effects, that (b) must be similar for a group of persons, (c) that these external effects cannot be overcome by a market for control rights or other simple transactions, and (d) that members communicate before and after the norms are agreed to. As communication is more crucial in the context of punishing non-compliance, this issue will be addressed in the context of sanctioning (Section 2.2.7).Google Scholar
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    It is therefore common to exclude liăn from analyses of the guānxì system (Yang MH 1994: 140).Google Scholar
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    As already indicated by the term dying (Open image in new window), “pursuing miànzi at all costs” has an explicitly negative connotation. The Chinese press (Wang Z 1999: 44) reports a case that revolves around a dispute between a butcher and a tax collector in rural Anhui province: a tax collector visiting a butcher shop asks the owner how many pigs he had slaughtered that day. Pointing to two pig heads on display, the tax collector questions the butcher’s reply (“one pig”) and requests an additional tax payment of RMB 20 (US$2.50) for the suspected second pig. The two men get into a huge row. Afraid of losing miànzi in front of his customers and of never being able to do business again in the neighborhood, according to the article, the butcher picks up a knife and stabs the tax collector to death. Although the way the story is told suggests that it may have been fabricated for educational purposes, it highlights the dark side of miànzi. The article refrains from specifying the consequences for the butcher, for readers socialized in China know that “pursuing miànzi at all costs is living death” (Open image in new window, Yang MH 1994: 141).Google Scholar
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    Drawing on Hu (1944), Hwang (1987: 960) provides a slightly wider definition of miànzi as “an individual’s social position or prestige, gained by successfully performing one or more specific social roles that are well recognized by others [within the social network].”Google Scholar
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    This is also why the terms “social esteem” (Open image in new window) and “public image” (Open image in new window) are near-synonyms with miànzi, and why they can be used interchangeably (Ye/Zhang 2003:1).Google Scholar
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    As this analysis is interested in the mechanism of miànzi creation, it shall not speculate as to its increments. Note, however, that miànzi, despite its high degree of abstraction, is treated by the Chinese as something that can be quantified (Luo 2000: 14).Google Scholar
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    Similarly, Chung and Hamilton (2002: 7) assume that “[t]wo persons can be close (...) because they are bound by obligations, or because they have strong affection for each other, or because they are instrumentally related to each other. Most of the time, there is a combination of the above three dimensions.”Google Scholar
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    By participating in a banquet, an influential member of the guānxì network increases the miànzi of the host and the distinguished guests, an act for which he is reciprocated with rénqíng and gănqíng. The result of a transaction system that is completely imbalanced in terms of rénqíng and gănqíng, i.e., debts are repaid with miànzi, is a perfect miànzi hierarchy (adopted from Coleman (1990: 130).Google Scholar
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    The logic of Coleman’s (1990: 130ff.) analyses of social status and money applies to miànzi and rénqíng.Google Scholar
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    In spite of the fact that the internal control mechanisms of guilt and shame exist in most societies (Li/Fischer 2002), it is popular to oppose Chinese societies to those that are characteristic of the West. As their role in the guānxì system is identical, this distinction shall not be further addressed.Google Scholar
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    Coleman (1990: 297)—probably for his personal interests in research on family and society—points to the problem of “underinvestment” in socialization, in particular in disaggregated modern urban societies. This problem can be explained with the incongruence of target actors and beneficiaries of norms (see above).Google Scholar
  77. 126.
    The Black Hand Faction itself is a guānxì network. By restricting membership to the clan, the Mafia protects itself through a virtual rampart (Open image in new window). It sends gifts to government officials—because “with money one can even control the ghost” (Open image in new window)—and thereby constantly maintains its protective umbrella (Open image in new window) of power (Jiang Renbao 2002: 20).Google Scholar
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    An attractive person has connections with powerful guānxì exchange partners (Zuo 1997: 65). Although Chinese culture assumes that interpersonal attractiveness depends on people’s bound destinies to meet (yuánfèn, Open image in new window), its shape and meaning largely depends on miànzi. What is interesting at this point is that yuánfèn originates in Buddhism, showing the heavy impact of non-Confucian elements on contemporary Chinese thought (see Section 2.1.1).Google Scholar
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    Since liăn was excluded from analysis in Section 2.6, its loss (Open image in new window) does not need to be discussed. Suffice it to state that in terms of severity, the loss of liăn is traditionally compared to the physical mutilation of one’s eyes, nose, or mouth (Luo 2000: 14): “Face is like the bark of a tree: without its bark the tree dies” (Open image in new window); the analytic separation of losing miànzi and losing liăn is valid here, because they have no connection (Zuo Bin 1997: 31).Google Scholar
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    Identically, Yan (1996a: 8) states that the person who does not abide by the rules (Open image in new window) will be relegated to a socially disadvantageous position. Note that the case of temporary suspension from the network shall be neglected because a survey of the literature did not yield any evidence of this type of sanction.Google Scholar
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    An example of ostracism through incremental sanctions is the collective refusal to attend the funeral of a malfeasant or his relatives (Yan 1996a: 19).Google Scholar
  82. 132.
    Chen and Chen’s (2004: 306) statement that “two individuals [...] are bound by an implicit psychological contract to follow the social norm of [...] a long-term relationship, mutual commitment, loyalty, and obligation” mixes too many things; it is also wrong: the contract is an explicit one, and it is socially enforced.Google Scholar
  83. 134.
    In an empirical study, Tung and Worm (2001: 529) found that the frequency of interactions with one’s guānxì partners was about once a month (57%) or once every few months (33%).Google Scholar
  84. 137.
    Today criminologists refer to the crimes of the powerful and privileged as white collar crime (Coleman 1987: 406). Such criminal behavior can be seen as a result of the coincidence of appropriate motivation and opportunity (Coleman 1987: 408).Google Scholar
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    For arguments on why mobility is also high for people with very great status, see Coleman (1990: 286).Google Scholar
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    For the intrinsic value of trust, see Nooteboom (2002: 4).Google Scholar
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    Instead of a trustee, the object of trust may also be an institution. This socalled systemic trust or confidence (Luhmann 1979) in the institution may be the basis for trust in its individual members.Google Scholar
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    Backwards induction is defined as the anticipation by which one player includes in his calculation the optimum response of another player to his action (Gibbons 1992: 58). Game theory is the study of multi-person decision-making problems (Gibbons 1992: xi).Google Scholar
  89. 146.
    Identically, Ci Hai (2003) identifies trust with the willingness to “take this risk of committing to somebody’s care.”Google Scholar
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    Coleman (1990: 124) identifies three more important “premises of trust”: (a) the allocation of gains from utilization of the desired resource controlled by the actors; (b) the specifics of time asymmetry; and (c) the fact that the trustee does not make a real commitment when receiving the resource provided by the truster.Google Scholar
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    In their analysis of guānxì networks, Lovett et al. (1999: 240) invoked a similar understanding of trust when they distinguished integrity from ability. However, Lovett et al. also include the concept of “benevolence”, which, to their regret, is completely lacking in traditional Western models (1999: 241). It shall be noted that this lack, in fact, is rather fortunate, for benevolence is included in integrity, and it does not constitute a separate form of trust.Google Scholar
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    In this context, Nooteboom (2002: 40) points to Shackle’s (1961: 6) insightful observation: “We think of uncertainty as more than the existence in the decision-maker’s mind of plural and rival hypotheses amongst which he has insufficient epistemic sources of choice (...). Decision is not choice amongst the delimited and prescribed moves in a game with fixed rules and known list of possible outcomes of any move or sequence of moves. There is no assurance that anyone can in advance say what set of hypotheses a decision-maker will entertain concerning any specified act available to him. Decision is thought and not merely determinate response.”Google Scholar
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    This feature has entered economics as the assumption of bounded rationality (Simon 1991: 26). For a model that incorporates bounded rationally into incomplete contracts, see Hart and Moore’s famous article (1988: 757) in Econometrica.Google Scholar
  94. 152.
    In spite of its reference to “trust that one gains due to (...) promise-keeping” (Ci Hai 2003), credibility (Open image in new window) is mainly associated with distinct business-related meanings.Google Scholar
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    Note in this context that the notion that Westerners attach great value to systems trust, while the Chinese are assumed to rely on personal trust (Luo 2000: 17), which per definitionem bypasses the external body, must be questioned. Calculative trust is based on sanctions, to which a third agency subjects non-complying actors, and it renders trust in the sanctions of Chinese guānxì networks no more personal than in Western legal institutions.Google Scholar
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    One of the best-known advocates of Freud’s return is, for instance, Mark Solms (2004: 82ff.), Professor of Neurosurgery and Psychology at the Royal School of Medicine and at the University of London.Google Scholar
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    For instance, the psychological cause affect (gănqíng) is said to be “highly relevant” (Luo 2000: 16) to trust because it involves one’s ability to identify with people that have similar behavioral schemata. Similarly, Nooteboom (2002: 63) notes that knowledge of a partner’s mental framework makes it possible to attribute motives and infer causes of behavior.Google Scholar
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    For an example of an analysis that introduces interpersonal trust ad hoc, see Ariño et al. (2001), who state that “parties that trust each other may undertake joint activities that exhibit a level of risk that would preclude others from doing so” (2001: 9).Google Scholar
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    A typical example is Fukuyama, who is researching on trust, and hence defines social capital as the “capability that arises from the prevalence of trust in a society or certain parts of it” (1995: 27).Google Scholar
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    In fact, Coleman (1984: 86) implicitly rejects definitions of social capital that are not based on the macro-level (see above).Google Scholar
  101. 159.
    In general, institutions represent humanly devised social constraint systems, i.e. a set of formal and informal norms that limits the scope of individual actions (North 1990: 3) and hence facilitates socio-economic exchange (Richter 2001: 31). Similarly, Scott (1995: 33) defines institutions as “cognitive, normative, and regulative structures and activities that provide stability and meaning to social behavior.” From the normative framework of how obligations are made and reciprocated, and how actors are sanctioned, it becomes clear that the guānxì system is as much an institution as a market exchange system that is based on contract law.Google Scholar
  102. 160.
    Recall in this context the criticism of Yang Meihui’s (1989: 49) perspective in Section 1.2.Google Scholar
  103. 161.
    Not surprisingly, a similar phenomenon exists in dispute resolution overseen by powerful villagers outside the guānxì network (see above): as these (unofficial) judges also administer justice according to the rule of maximum hóngbāo, there is constantly interference from people who seek to have influence on future judgments (Open image in new window, He XF 2003: 16).Google Scholar

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