Government and family guanxi in Chinese private enterprises
Domestic private enterprises have dramatically re-emerged in China's unique transition from a planned to a market-oriented economy, where the private sector plays an increasingly important role. Over the last quarter of a century, there has been a decline in 'red-hat' enterprises and an increased dominance of family businesses among private enterprises.This paper employs the concept of trust, which stems from traditional culture and comprises two important components (government and family), to investigate the changing patterns of corporate governance. The core argument of this paper is that family trust is replacing government trust within Chinese private enterprises. The study of the determinants of government and family trust (Guanxi) of this paper is based on a survey conducted in 2006 over 296 private enterprises in Ningbo China. The empirical results show that private firms prefer family members to the government for co-operation as the firm ages and the instability of the business environment increases. The findings of this paper give additional support to our understanding of why family businesses constitute the majority of Chinese private firms. The results also reflect the different effects of government and family Guanxi on the firm's economic activities, representing respectively the separation or combination of ownership and control in terms of corporate governance in private firms.
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