Guanxi...Guanxi can be referred to the Chinese social matrix, in which each of its members has a...

Dmitry B. Grafov, Ph.D. (Politics), senior research associate, RAS Institute of Oriental Stud-ies. E-mail: [email protected]: 10.31857/S013128120001143-8

82 FAR EASTERN AFFAIRS

The Guanxi Economic Model in China:Comparative Analysis

Dmitry GRAFOV

Abstract. This article is devoted to analyzing the motivations of partic-ipants in informal relations known in China as guanxi. The author comes tothe conclusion that it is the economic motive that is dominant in uniting par-ticipants in chains and groups, in which private interest is satisfied throughcollective actions by the redistribution of public or corporateresources.

keywords: China, informal ties, guanxi group interests, supervisor –subordinate relations.

The studies of guanxi informal relations widespread in China are dominat-ed by a psychological approach, which makes it possible to describe the outwardmanifestations of these relations. However, it does not disclose the innercausative-consecutive ties, suggesting to regard guanxi as a cultural phenome-non based on tradition, the Chinese model of the family and the Confucian prin-ciples. The economic approach enables us to view guanxi relations as a systemof collective loyalty of subordinates toward the leader, which is based on a bal-ance of material and nonmaterial interests. Economic approach makes it possi-ble to explain why guanxi relations are formed, how they develop and break. Allimmanent features of guanxi – trust, reciprocity, obligations, governance, whichwere psychologically explained by tradition, are coming out as “organic ratio-nality” in the model of the “economic man.”

Literally, the word guanxi translated into Russian means svyaz’ “connec-tion.” From the sociological point of view, persons who entered into guanxi rela-tions represent a closed or an open group (network) in which they are connect-ed by common interests and observe definite rules of behavior. The striving fororganization in groups has historically been inherent in man and is due to theneed to more effectively procure and distribute various benefits. The guanxi rela-

Grafov, Dmitry.The Guanxi Economic Model in China: Comparative Analysis. Far Eastern Affairs (Vol. 47, No. 1) pp. 82-98.

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83The Guanxi Economic Model in China

tions are also connected with providing preferences to those who are members ofthese groups. Among them are posts, incomes, expenditures, contracts, etc. Peo-ple in the guanxi relations form an informal group resembling a family whosemembers have definite obligations to each other. The relations are based on trust1and to violate them is practically impossible, for it may threaten the group withnegative consequences.2

The use of guanxi for illegal aims, for example, corruption, is interpreted bya special term guānxìxué.3 However, corruption is a deed and result examinedand established by court, but connections are only an instrument of manipulationtypical of Chinese culture.

Such type of relations is not welcomed by western business, and it plays alesser role in the developed regions of China than in the provinces, where statepower and government control are weaker, or, on the contrary, in the spheresneglected by the Chinese state which leaves them without proper regulation andtransparent procedures. This includes the state apparatus, procedures within theruling party, and relations between party functionaries and business. In allspheres the guanxi relations serve similar goals – redistribution of resources infavor of a group of persons connected with these relations. Guanxi can also beregarded as a form of collective loyalty to the supervisor (not necessarily the offi-cial boss), and also as a Chinese form of cover-up, which can oppose a formaladministrative structure.

Guanxi relations exist, as a rule, behind business transaction procedures orofficial instructions and rules. For example: a supervisor may hope that his sub-ordinate will do more work at a high level and will not let him down; conceal hisfaults and errors; a subordinate may hope to move up the career ladder, or anoth-er reward from his supervisor (bypassing formal procedures or with their use).

However, these are not didactic client-patron relations, in which the patronhas no obligations to the client, except those, which he voluntarily took uponhimself. Guanxi can be referred to the Chinese social matrix, in which each of itsmembers has a position and obligations for its other members, and, what is themost important – the group leader, formal or informal. X.P. Chen and C.C. Chen4

describe guanxi as a Chinese specific phenomenon based on informal particularrelations between the supervisor and the subordinate (formal or real) connectedby an implicit psychological agreement to follow the guanxi rules. Such relationsare long-term, loyal, and full of mutual feeling of duty. X. Chen and C. Chen payattention to a pragmatic character of these relations in tackling practical prob-lems and observing the principle of long-term justice.

The guanxi relations have cultural and historical specificity. First of all, theseare the Confucian principles of respect for the knowledge and post, submission ofa plain man to an aristocrat, the younger to the older, the state as a family, wheresupreme power belongs to the father who is obeyed to and respected by others.Second, strong collectivist habits originating from the communal system and fam-ily and territorial clan structure of traditional Chinese society. The family is,



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above all, a corporative body of mutual assistance, on which guanxi is based. Thestrength of the family is its historical reputation. Hence, the “loss of face” as the“red line” behind which is the loss of the status in hierarchy in guanxi.

The “preservation of the face” presupposes, on the one hand, the guaranteeof the required (minimal) respect and protection from an awkward situation,5and, on the other hand, it keeps from the violation of the “family rules” (guanxirules). Until now family connections in China are very strong. And the familyguarantees to a certain extent, the framework or rules, which will not be violat-ed by its member under the threat of “losing face.”

Nevertheless, loyalty to the family and ideas of the duty and honor in Chinado not always coincide with the ethical standards existing in the western civi-lization matrix, the free market principles and open society.

The guanxi practice

– rejects the equality of all before the law or established rules;

– rejects equality in the right to find and take the post of duty;

– rejects equality in the distribution of remuneration for equal work;

– proceeds from the priority of personal agreements over those written in acontract;

– uses nonmarket forces in market relations for higher competitiveness andprofit.

Quite often, guanxi relations and groups set up with the help of such rela-tions are referred to as criminal. This is not correct and those entering into guanxirelations do not always set the aim of trespassing the law. At the same time, suchrelations seem to present the foundation for nepotism and corruption.6 This iswhy the western-type business which came to China, on the one hand, tries tooppose informal ties existing on the guanxi basis, and on the other, looks formeans to use the positive aspects of these relations. If business is transparent,there is nothing bad in that the bosses single out convenient (loyal, conscien-tious) subordinates with whom they have good relations profitable to businessand help them go up the career ladder.7 In turn, subordinates trust such bossesmore and show better work.8

The guanxi relations also include another sphere – relations between Chi-nese doing business between themselves and the state. The spirit of collectivismis quite strong in Chinese business. The guanxi relations help business practicesbecause they facilitate human communication, and in relations with the statecome out as a collective instrument of protection. For instance, representativepolls on the significance of guanxi connections in business showed that the aver-age level of support (more than 64%) goes to the following views:

“I am always ready to render help to my colleagues when they ask.”

– Most businesses have been created through connections.

– Businessmen should act freely, without state interference.



– Business relations exist because businessmen can help one another inopposing the rest of the world.

– Most entrepreneurs in China, both men and women, belong to smallergroups, which help one another to succeed.

– “My colleagues and I look for ways and means to bypass state regulation.

– Members of most business groups do not like to act unlawfully, however,they could have acted in this manner, if it could have given them profit.

However, guanxi as a collective instrument of self-protection has its limits.This is not a 100% cover-up. For instance, the words “if a colleague in businessdeceives the state when paying taxes, and it becomes known to the authorities, Icould lie to help him” were shared by only 36% of businessmen, while 46% wereagainst.9

Modeling of Relations

The behaviorist approach seems to be the most interesting one, for it has thecentral motive of private interest which underlies the particular relations at allthree stages: entering the guanxi relations; distribution of resources between thesupervisor and the subordinate; departure from a group. Investigation has shownthat Chinese leaders may single out from among their subordinates those whorespond to the guanxi rules10 and then offer them more benefits, give more pref-erences, and opportunities for going up the career ladder.11 For their part, thesubordinates, who have accepted the rules of the game, demonstrate greater loy-alty to their superiors and better work.12

The decision on the entry into relations of this type can be expressed by twoconditions.

1. Benefits (B) from the entry should outweigh in expectations their pre-sent state B (future) /B(0) >1.

2. The very number of future benefits can be expressed through the bal-ance of advantages and expenditures. This balance is formed from whathas to be sacrificed (Cost), for example, more worktime or rejection ofother prospects plus benefits, which a person entering guanxi gets rightaway B (1), as well as certain benefits B (future) and expenditures Cost(future), which these relations may give in the future. These two para-meters are of an expected probable character. But, evidently, their mag-nitude will depend on the degree of engagement K (engagement) in therelations and business of the group offered by the supervisor and accept-ed by the subordinates. In any case, a person entering into relationshopes to control them. Thus:

B (future) =B (1) – Cost + K ´ B (future) – K ´ Cost (future).

The Guanxi Economic Model in China 85




Empiric research has also shown that the quality of personal relations canimprove or worsen due to positive or negative incidents which take place duringinteraction.13

At present, several psychological approaches to modeling guanxi relationsare known. The category approach regards guanxi from the point of view ofdirect particular connections between two persons. The persons belong to differ-ent categories: family members, close persons, and strangers. Category connec-tions have priority and determine all relations. And the categories themselveshave the unchanged hierarchy.14 The category scale of guanxi presupposes eighttie-forming categories: relative, namesake, fellow countryman, former class-mate, former colleague, former teacher/student, former boss/subordinate, formerneighbor.15 A drawback of this approach is invariance of relations, irrespectiveof the situation, which people using it have a notion about its rules, nonverbal,perhaps, and the “category” of the opposite side can be regarded as a coefficientraising trust and guaranteeing reliability of the given connection. A former class-mate, former colleague, former boss/subordinate, and the word “former” is thekey one. That is, a man tested by time and human relations. Real life is an open,dynamic, indeterminate system with an unlimited number of scenarios.

The category approach tells us very little about aims and foundations onwhich relations between human beings arise, although this approach can be usedfor modeling a limited number of situations. But categories cannot determineactions of actors as a diplomatic protocol. Moreover, traditional Chinese societyhas transformed rather radically; in big cities kin has now less weight than in vil-lages. A study carried out in Hong Kong has shown that the family bonds withdistant relatives have weakened so much that they cannot serve as a foundationfor guanxi.16 And friendly ties may be stronger than family connections: every-thing depends on their quality.17

The dynamic approach used a one-component and three-component modelsof guanxi. The former model regards social interaction between the supervisorand the subordinate outside work as system-forming.18 The model proceedsfrom the fact that emotional ties (relations more important than work, whichexist in free time), play a particular role. Profound sincere loyalty may be rec-ognized as a strong emotional feeling, but if as a result of such relations certainresources and benefits are redistributed, this is a rather infirm foundation for ananalysis of guanxi.

Second, the one-component model does not make difference between emo-tional attraction – organic and instrumental, that is, one demonstrated by the sub-ordinate to the supervisor precisely because the latter would like to see it.

But the main thing is that there is no answer to the question as to why thesubordinate does enter into special relations with his boss. How the attitude ofthe acceptor (boss) to the donor (subordinate) in the one-component model dif-fers from other forms of social interaction: protection, or membership in a party,or benefit society.




The three-component model is considered better elaborated and moredetailed. It proceeds from the presence19 in the structure of guanxi of emotionalattachment not conditioned with material benefits and even the readiness to helpand follow behind the supervisor; second, involvement into personal life, whichincludes acquaintance with the family, participation in pastime outside workplace,third, reverence to the supervisor, loyalty through socialization with him, recog-nition of his authority and belief of the subordinate in the boss’ just behavior.

In the development of a three-component model Y. Chen’s work20 sets theaim to create a scale for measuring guanxi, which has a psychometric support. Aconcept is put forward that there are “contract relations” – a type of a marketagreement between the donor and powerful acceptor, supposing what the donorgives and what he receives from the acceptor in return. On the other hand, in thesupervisor-subordinate couple informal relations are established, like the onesexisting between the senior and junior members of a family with mutual obliga-tions. This is natural for China, where the family is the model of relations in anysocial domain.21 Family collectivism is determined as a sum total of values, con-victions, and behavioral standards, which are accepted in various spheres of life,including reactions of a person with a higher and lower status.22

In an attempt to grasp the psychological nature of these relations, the respon-dents’ attitudes to certain aspects voiced, in the authors’ view, the situation man-ifestations of guanxi. The initial foundation was made by 265 comments offeredby 23 MBA students of the average age of 27.4 years and work record of3.5 years. One hundred and thirteen comments were left of which 24 were cho-sen to be given to respondents for assessment by the six-point scale, from “com-pletely disagree” to “fully agree.” They were offered to 386 workers of compa-nies in two industrial cities of China. Due to a contradictory character of word-ing, different nature of answers, and possibility of different interpretations halfof them (24 in all) were discarded. The remaining 12 were divided by three com-ponents as follows:

Emotional attachment.

1. My boss and I always share thoughts, ideas, views, and feelings con-cerning work and life.

2. I feel quite comfortable in the company of my supervisor.

3. I shall be disappointed and feel sorry if my supervisor decides to changehis place of work and leaves for another company.

4. If my supervisor has problems in personal life I’ll do everything to helphim.

Involvement in personal life.

1. My boss could ask me help him in some of his family matters.

2. During holidays, my boss and I could talk over the phone or visit eachother.



3. After work we can dine together or go somewhere for entertainmentbeyond the framework of working relations.

4. I know the family members of my boss and maintain personal contactswith them.

Respect for the supervisor.

1. I am prepared to obey my supervisor unquestionably.

2. If I disagree with my boss, I shall support his decisions all the same.

3. I am prepared to renounce my aims in order to have the aims of my bossfulfilled.

4. I am prepared to sacrifice my interests for those of my supervisor.

Most of those polled agreed with all these words and the degree of consentwas the highest. Y. Chen comes to the conclusion that the three-component modelfits better to the facts than the one-component model and the category model. Andthis three-component scale is quite good to measure the construct as guanxi.

A conclusion is drawn, namely, that guanxi is a sort of a form of quasi-fam-ily relations, which can change depending on the quality of the supervisor-sub-ordinate relations. This variable is transformed from the contract basis – eco-nomic relations of exchange of the subordinate with the supervisor – into com-munal relations based on the “share” use/distribution, which is established by theactor (boss). The two components of guanxi – emotional attraction and involve-ment in personal life – reflect the “share” use/distribution. The third component,“respect for the supervisor,” reflects the importance of power in the supervisor-subordinate relations typical of collectivist cultures at a great distance from therule of law.

correlation of Personal Interestand Traditional Guanxi Standards

n The first remark concerning the three-component model is that the verysourse of what is said by Y. Chen bears a mark of subjectivism. If the con-vergent and discriminant validity can pass through the check, its essenceis far from evident. As we have noted, subordinates may demonstrateinvolvement in the life of their supervisor and emotional attachment pre-cisely because the latter wishes to see them. That is, they will not be nat-ural, but will only be instrumental characteristics, which are ignored bythe given model.

n The second remark. There is no confirmation that the respondents wereasked precisely about guanxi. They could simply answer questions aboutthe attitude of their supervisor toward his subordinates.




n The third remark.The authors were going at first to introduce to the modelthe fourth parameter, the so-called LMX (Leader-Member Exchange),which characterizes the main aspect in the relations between the supervi-sor and his subordinates (a deal by default), as a result of which the sub-ordinate hopes to improve his position, including material one. And thesupervisor now has a subordinate who not only works for his company orthe state, but is personally obliged to him.

However, a conclusion is drawn that guanxi is best of all represented by threefactors, and there is no need to test other alternative models, which could includeLMX. Y. Chen reports that in the process of elaboration of statements which werethen used in the poll, “the words of participants often contained ideas about theconnection of guanxi relations with the career movement, important assignments,rewards, praises, privileges, etc. But such manifestations of guanxi relations couldconfirm the existence of these relations, but they do not help understand their realnature.23 This means that the psychological aspects of these relations were placedabove the causative-consecutive connections. In actual fact, benefits of guanxirelations are not a conseqence, but the real cause of their emergence. And loyaltyand devotion to the boss as a fixed pattern of guanxi can be regarded parallel withthe private interest laying at the basis. For the boss, their manifestation may serveas an additional guarantee of reliability of the subordinate. As to the subordinate,it is an inalienable part of guanxi, a tradition, in actual fact.

Undoubtedly, the arguments used by the adherents to the three-componentmodel merit attention. The Leader-Member Exchange model has been evolvedfor a free legal labor market and deals only with working relations,24 whereasguanxi goes further, presuming that the supervisor and the subordinate are with-in the framework of a social exchange and interaction outside the limits of theirdaily working contacts.

Although both guanxi and LMX are based on social exchange,25 their mod-els of relations are different, similarly, the principles of mutual benefit also differ.The model of relations in the LMX theory presupposes “equality in coordination”,it is based on just exchange on the labor market – production delivery (efforts ofthe subordinate), on the one hand, and on the other – reward from the supervisor.And guanxi presupposes “collective by-share participation” for the sake of thecommon aims proclaimed by the supervisor, with the personal obligations of thesubordinate based on the mutual trust of all participants in a group. But this doesnot mean that the sides in guanxi relations are deprived of the freedom to enter inrelations and leave them, if their position does not correspond to their aims.

It is precisely this “traditional component” of the “supervisor–subordinate”relations in China (submission to the boss, the family model of social life withthe right of the family head domination) that gives more grounds to talk of thesignificance of personal interest and the distributed resources. Compared to thewestern market with its regulated legal standards and transparent managerial pro-cedures, on the Chinese market the supervisors have more freedom to manipu-




90 FAR EASTERN AFFAIRS

late with resources and can influence the life of their subordinates by variousmeans more profoundly.26 The labor market in China is not too well developedand free to make it possible for a subordinate, who has lost his job at the boss-es’ will, to find another job easily. From this point of view, good personal rela-tions with the supervisor may have a material substance and measurement. Loy-alty of a subordinate duly assessed by the boss is positively connected withgoing up the career ladder, and does not call for the need to look for a new job.

Chinese specificity also lies in the fact that the resources used by the super-visor in his dealings with the subordinate can be not only material. In the tradi-tional hierarchic Chinese society the status plays a great role. High-quality rela-tions with the boss may raise pride and self-esteem of subordinates, which, inturn, may convince them of the just nature of the procedure practiced in a givengroup.27 Thus, the exchange of the subordinate’s loyalty is taking place for theresources in charge of the supervisor; the just nature of such exchange creates apositive contact in the supervisor – subordinate relations and increases theirinvolvement in the deal.

Hierarchic connections act similarly not only in guanxi. Such informal rela-tions of exchanges of services leading to mutual benefit exist in different cul-tures. There are other traditions and another psychology, but the same basis –personal interest.

In Arab countries, the practice of informal interaction with key figures athigh posts in personal interests has been named wasta, which can be translatedas “whom you know,” or “mediation.” Connections are personalized and areoften based on related or close friendly ties.28 Wasta is closer to nepotism thanguanxi, but their essence is similar, namely, that tangible benefits can be gainedonly through personal relations. Wasta is the most widespread in Jordan, SaudiArabia, and other Gulf monarchies.29 However, wasta is very frequently men-tioned when receiving permissions from the state for taking a government post.And it is less connected with collectivism than guanxi.

The use of connections or influence in Latin America has several names. InChile it is pituto, in Brazil – pistolão and jeitinho. The latter is not simply “service,help, protection,” but a certain benefit, which cannot be gained lawfully. This is aspecific feature of behavior characteristic of representatives of various segments ofBrazilian society.30 Apart from that, in Latin America these relations are built on amore equal basis (“tit for tat”). In contrast to guanxi, the deal is not bolstered upby serious guarantees (the community or group is not responsible for the parties tothe deal). Relations can be brief, depending on the situation. Guanxi presupposesthat help will be granted when it becomes urgent. And in jeitinho, for example,there are no such collective guarantees. But the general rule is as follows: whenrendering service the actor invests in himself, and when he asks, he receives divi-dends from the resources which he shared, or he himself borrows these resources.

An analogue of guanxi is “profitable connections” – a type of relationswhich were widespread in the U.S.S.R. But it had only a utilitarian function in



the Soviet reality, namely, receiving resources and their exchanging through con-nections in the absence of market mechanisms. Compared to guanxi, these rela-tions had not too much personal involvement,31 responsibility, or outwarddependence. They were easy to enter and leave. In modern Russia, they havebeen reduced considerably to a simple nepotism understood as practical relationsbetween relatives, and on the other hand, to curruption chains functioning bycriminal laws.

Relations aimed at gaining material and nonmaterial resources through per-sonal connections also exist in Germany (Vetternwirtschaft), in Turkey (destek),Britain (pulling strings), and in Poland (plecy).

cross-cultural Approach to Analyzing Informal Supervisor-Subordinate Relations

P. Smith with coauthors32 has carried out a cross-cultural research in fivecountries and established that different models of preferential relations are simi-lar to guanxi. The researchers L. Grigorian and N. Lebedeva have also found, onthe example of five countries (Singapore, Saudi Arabia, Russia, Britain, andBrazil), a cultural universal mutual connection between components of informalrelations and organizational loyalty arising in labor relations.33

The three-component model of guanxi was taken as the basis. The results ofa sociopsychologcal poll and a factor analysis have shown that in all five culturegroups the structure of informal connections repeats the Chinese guanxi model.But cultural distinctions were also revealed. For example, on the scale of“Respect for the boss” concerning the very Chinese contention that “Even dis-agreeing with the boss I would have supported his decision” there was no unityin assessments. It is noticed that for Britain involvement in the boss’ personal lifeis lower than in Brazil, and for the latter lower than for Singapore. On the whole,all three components – emotional attraction, involvement in personal life, andrespect for the boss grow from countries with individualist culure to countrieswith the collectivist social organization.

It is not to be excluded that broader participation in the personal life of thesupervisor may reduce a benefit after a certain limit. The subordinates may feelthat having become sort of “relatives,” they do not receive just gains from theboss on the ground of “why pay more to family members.”

Another distinction emphasizing how collectivist and family structure ofguanxi differs from others in other, more individualist cultures, is the number ofconnections of one actor in a group of two or three, and in guanxi offive to nine.

Thus, if endogenous, specific cultural models of informal connections havea common basis, which is the distribution of resources based on personal con-nections, then economic approach can explain more than psychologicalapproach. Moreover, it can open a way to an analysis to other groups of connec-

91The Guanxi Economic Model in China




tions and chains of relations, which were not regarded earlier as specific cultur-al groups. For instance, the system of interaction of lobbyists and politiciansbased on the exchange of the legislative resource of politicians for contributionsto election campaigns from groups of special interests. Likewise, the economicapproach may be used in examining the processes of circulation in the elites –cooptation and filtration.

A rational economic behavior presupposes the desire of an individual to gaina maximal result at minimal expenditures in the conditions of limited possibili-ties and resources. He who acts rationally wins, and he who does not loses.34 Incase of informal relations, their cultural context will determine rationality. Forexample, maintaining many connections and receiving personal gains throughcollective interests will be a rational behavior for guanxi.

Rationality is subdivided into:

Ø Complete (maximal benefit with minimal expenses, presupposingexhaustive information for adopting decisions).

Ø Limited (absence of complete information or possibility to process it). Inthis instance, a person is striving for the implementation of the best vari-ant, not having full information or the ability to process it. A dicision istaken on the basis of personal intuition.35

Ø Organic (decision is taken on the basis of formal and informal rules ofbehavior).36

F. Hayek points out that interaction of people becomes rationalized due toformal and informal rules of behavior, which have taken shape through evolu-tion by institutions of human society.

It is organic rationality that is typical of specific relations between the super-visor and the subordinate (the senior and the junior, the patron and the client),where there are no contracts with guarantees, no written rules, clear prospects,and calculations of gains and losses.

Nevertheless, we mean deals, exchange of resources, and deem it importantto examine the conditions to conclude a deal, observing it, and withdrawing fromit. X. Chen and C. Chen37 also single out three stages of the creation of relationswhere the third is the pragmatic use of the principle of long-term justice in tack-ling problems (or nonobservance, which can lead to beaking the deal).

What is the “pragmatic use” and “long-term justice”? The former means thatas a result of pragmatic approach there will be more gains than there were at thetime of adopting the decision. That is, the business atmosphere will improve(otherwise, there is no need to change anything). The latter is such psychologi-cal and emotional guanxi characteristics, as “justice” and “loyalty” which meana concrete thing, namely, observance of the rules of an agreement. Guanxiregards it absolutely implicit, or guaranteed by the very nature of these relations.

But with a scientific approach we should not exclude any possibilities orbase any scenario on rational relations.




At the initial stage t (0–1) prior to entry into a deal, we single out “our” and“alien” people. Evidently, the initiative may come either from above, or frombelow. As the criterion of trust, the place of origin / study, name / family con-nections, and other category markers will be examined. But they are only refer-ence points, as it were, for the supervisor. One who can agree to act bypassinglegal procedures (or those established by the administration or the state) on con-dition of the emergence of gains for the two sides, will be regarded “one’s own.”In other words, the legal character of the (+L.1) procedure at the next point oftime should change the sign (-L.2), and gains should grow (B1<B2).

If this is not a coincidence, and the person under control concerning his atti-tude to the guanxi rules – readiness to act in violation of the established proce-dures with mutual gain – the sides can continue to interact in the same way fur-ther on. At the stage t (1 – 2) their decision will be described by the formula pre-sented above:

B (2) = B (1) – Cost + K ´ B (2) – K ´ Cost (2).

Naturally, the other side in binary relations will have a similar balance ofgains and expenses. And the developing relations (it is possible to single out atest term) will be described by a coefficient K (engagement). The latter, natural-ly, requires voluntariness, concent of the junior (donor) to act on the conditionsof the senior (acceptor). This stage reflects the strength of support and impor-tance of the services, which the subordinate is prepared to offer to his supervi-sor. The degree of engagement (or promotion in the guanxi structure) meansmore rights in benefit distribution, but does not mean guarantees of winninggains or the share of them. The right of distribution is vested with the powerfulactor, and the subordinate is in the position of a person accepting the conditions(in guanxi as a family member toward the head of the family).

The formula of accord may also reflect preparedness to share commonexpenses (losses) and share part of the future gains (labor results), which mayhave nothing in common with nominal wages or salaries.

At the stage t (2 – 3) a situation may emerge preceding the withdrawal fromrelations when gains from preserving them have diminished – B (3)<B (2). Thatis:

K ´ B (3) – K ´ Cost (3) < K ´ B (2) – K ´ Cost (2).

At the moment t (3) there will be fewer gains than at the moment t (2). Butapart from the logical breaking of relations, a situation may emerge, when thecost of breaking relations will be greater than it is expected during the preserva-tion of relations. Hence, withdrawal from relations may not take place. This is akind of zugzwang, or coercion to refusal from withdrawal, including due to thethreat of “the loss of face.”



Now, about the specific feature of guanxi, on that the exclusive character ofsuch connections is not conceptualized within the framework of the economicapproach (or Leader-Member-Exchange in a broad sense), and whether it is pos-sible to view guanxi as a private case of more general regularities. First, we donot deal with the constant guanxi. This is really a cultural pattern existing in def-inite social domains, which has a specific feature of taking forms of new institu-tions and social structures constantly. Its influence may diminish in some socialdomains and appear in changed formats and practices.38

Second, the structure of the collectivist groups of guanxi and the rules onwhich they are formed serve one goal – guarantees. Not one of the organizedgroups drawn in any process (even in sports) can get along without observing therules by the sides. Сollectivity and community of guanxi, its immutable rule that“the subordinate should be loyal to the supervisor, and the latter should be theprotector of the subordinate,” broader relations with people who are not formalrelatives-family relations,39 which are an important part of guanxi, serve thestrengthening of ties within the group, and hence – serve guarantees. Incidental-ly, in old Russia “Godparent” became a person connected with the family, almosta relative. Joint participation in religious ceremonies created guarantees of asecret union.

A foreigner cannot have full-fledged guanxi relations because he is left aloneand, consequently, can do as he pleases. In contrast to a Chinese, who alsobelongs to his family, and is connected by responsibility with people still living,those already dead, and those who will be born. Metaphysical concepts have vir-tually a physical value if the parties believe in them.

But belief alone is not enough. Visible confirmations are necessary. The rit-ual indicators of the subordinate’s loyalty taken as the basis of the three-compo-nent model are his “emotional attachment” to the supervisor, engagement in hispersonal life and reverent attitude to him. This revelation of guanxi demonstrat-ed by the subordinate (sincerely or not) reflects only the inner content of guanxibut in essence is observance of only one of the rules. Of course, it cannot beexcluded that ties in guanxi can be irrational. If people become really close toone another, nonmaterial attachment may arise between them. But such relationsas friendship, love, when one person feels nonmaterial responsibility to anotheris a subject of separate investigation. It is difficult to imagine that subordinatesare in such guanxi relations with the head of any Chinese business.

However, if one looks at guanxi without idealization, one could place othermodels of collective relations beside them, also based on belief in principles ofcommunal justice demanding from their members that they follow the postulatesof this belief. For instance, the Soviet “kolkhoz” – a form of ideological labororganization with the ideologically just distribution of its results which was, inactual fact, a slavish labor mobilization in the interests of the party apparatus(both in the U.S.S.R. and in China).

Within the “collective economy,” a multistage filtration was taking place, as




well as the singling out of people who best of all accepted not only outward fea-tures of “collective-farm life,” but also the unwritten “supervisor-subordinate”rules in the party economic system. Virtually free labor was required by the sys-tem, and the boss wished to surround himself with subordinates loyal to him andable to fulfill the functions which he specially needed. In his turn, he broughtthem close to himself and coopted to the “kolkhoz” elite. And further on, thematrix of relations reproduced itself at all levels of the party economic system.The subordinate (donor) should have taken alien risks in exchange for protection.To prevent media leak, which could harm the interests of the boss (acceptor). Totake responsibility for the blunders of the group members with a higher status inthe hierarchy. And the main thing was not to capitalize the results of one’s ownlabor (not to privatize them), but to agree to give them to the disposal of the boss(acceptor). In other words, express readiness to share both collective losses andresults of one’s work in exchange for an upward movement in the hierarchy. Theprospect of a new status – social lift – was one of the mechanisms to move to themanagerial elite.

One can also note another aspect of the “kolkhoz” model. If there are specialrelations between the supervisor and the subordinate (with the latter’s involve-ment in personal life, emotional attraction, respect), it will be more difficult forsubordinate to demand remuneration. And it will be easier for the boss to replacematerial reward with something else, for instance, a morally, publicly or ideo-logically significant award. Such relations can be found in guanxi, where bossescan also use emotional involvement and friendly empathy in order to make loyalsoldiers of subordinates.40

* * *

So, Chinese guanxi can be regarded as emotional and psychological connec-tions between people, and also as a definite social structure with its specific rulesacting in the interests of its members. Special relations used for receiving gainsbetween individual actors exist in many cultures. Where individualism is a wide-spread norm of behavior the individual acts independently. In more collectivistsocieties actors see benefits from actions in group forms (guanxi). In China, afavorable ground for informal connections is created by a weak legal infrastruc-ture and the lack of respect for law. The actors included in guanxi observe oblig-ations, because their violation involves losses. The mechanism of guanxi (“keep-ing face,” exchange of benefits, services, and information) is similar to the sys-tem of informal relations known in other cultures, where group or individualactors come out as brokers on the market of power with a view to distributingand redistributing various resources. Such special relations between group actorson administrative and political markets have long been known in European coun-tries as “logrolling.”41




Thus, various models of informal connections have a common basis. Thisbasis is private interest, which is universal culturally and determined by gainsand expenses. The mechanism of guarantees and just distribution changes fromone endogenous matrix to another. The examination of the actions of individu-als through the balance of economic interests makes the modeling of the mech-anism of guanxi more informative, as compared to psychological approach.

The further development of the modeling of constructors like guanxi couldbe transfer from the behaviorist-economic model to the model of a collectivegame with the rules violating or keeping which is reflected on the count. Thearbiter in the game is the stronger side, and one of the motives of the weak sideis observing justice and following the rules.

At the same time, the Chinese system of informal relations represents askeleton of social stability. The study of interaction of the actor-supervisor andthe actor-subordinate and the functioning of the guanxi system itself couldenrich the theory of development and cooptation of elites. The western problemof withering away and circulatory changing elites in the Chinese case can besolved through social reproduction of building material for the elite. Other socialmaterial cannot survive in China.

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Translated by Yevgeny Khazanov




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