Chapter 5 - Business Networks and the Emergence of Guanxi Capitalism in China: The Role of the ‘Invisible Hand’

Abstract

Several scholars have addressed the important role that guanxi plays in the Chinese social-economic system. Nevertheless, how and why guanxi capitalism emerged in China is somewhat underplayed in the literature. This chapter examines guanxi capitalism in order to reveal the features of China’s economic system embedded deeply in its cultural-social-political environment. We explore how guanxi capitalism emerged, evolved, and dominated the economic system by reviewing Chinese business history, understanding attitudes toward business, and elaborating the ‘Five Classified Relationships’(Wulun) of Confucian ethics. The aim, therefore, is to develop a conceptual framework of the ‘Guanxi Capitalism Structure’ building on ‘Differential Mode of Association’ (Chaxugeju) theory and using the concept of ‘Central Managed Capitalism’, as well as the ‘Network of Guanxi Circles’ framework. This illustrates the fundamental role of guanxi as the ‘invisible hand’ in China.