From Bad to Worse ? The Survival of Guanxi and Corruption in the Evolving Institutional and Legal Context

Recent history has not favoured China with a stable legal and regulatory environment. Instead, personal connections – guanxi – enabled individuals and their networks access to support and resources. As the clarity of laws improves, functioning markets established and mechanisms for enforcement developed, a decrease in relationship practices and an increase in impersonal, bureaucratic interactions should occur, the latter enabling transactions at lower cost than ones mediated by time-consuming social relations. The Chinese legal system has supposedly improved and difficulties of doing business should logically have decreased. However, some studies as well as the empirical evidence presented herein suggest that this might not have happened. This study extends extant research to see if this has happened by exploring the resilience of relational practices to the formalising institutional system. Specifically, extant theory and empirical evidence from the institutional and guanxi literatures are employed to investigate one research question: how has the evolution of the institutional and legal context affected guanxi practices ? Our research methods were exploratory and qualitative, conducted among long-standing foreign and Chinese business managers in China. To enhance validity, data were collected through multiple sources : non-participant observation, semi-structured interviews and internal documents. Systematic content analysis was performed in a thematic way with qualitative research software. The data supports recent observations suggesting that the business environment has become more difficult and that network and gift-giving practices are both required and perhaps transforming into something altogether less pleasant. Five themes emerge from our research b: 1) relationship practices continue, 2) in a changed legal and moral context; 3) as a result, the emphasis of the practices has changed; 4) institutional change and moral collapse provide exploitation opportunities; and 5) a fallacious orientalism drives the inter-cultural management industry. Our paper contributes to the emerging understanding of China's transition, particularly with respect to the formal and informal institutions governing the overlap between economic and social behaviour. From a theoretical perspective, it augments the institutional literature on China. From an empirical perspective, it provides a rare in-depth qualitative description and analysis of perceptions of Chinese business practices from Chinese and foreign managers. For practice, it provides insights to managers as to how relationships with Chinese partners should be considered and developed.