Personal relations in Chinese enterprise reform: The interaction between formal -impersonal structure and informal -personal power in the process of transforming state -owned enterprise property rights

Since early 1990s, Chinese government not only introduced a variety of Western style "modern enterprise system" but also made efforts to establish a sound economic legal framework to provide the elements necessary for economic actors to carry out activities in a more market-oriented environment. However, the field research conducted in China between early 2000 and mid 2001 shows that the introduction of impersonal market mechanism and its practices as well as the introduction of laws to support the market system have not caused the decline of informal-personal practices in China's state industry sector. The reform of restructuring and transforming SOE property rights invited more opportunities for government officials and entrepreneurs to forge informal and personal networks and to help each other gain private benefits.;Reform is a politically dangerous process because it usually attacks the perquisites of an entrenched elite who generally oppose the process. The initialization of reform in China needed to overcome political oppositions from the existing vested interests under central planning. The dual and gradual strategy of reform---the coexistence of plan and market---has given incentives to both reformers and conservative bureaucrats who might otherwise be the potential opponents to the on-going reforms. Although it is politically attractive, in reality, the incremental introduction of market mechanism contributed to the institutionalization of informal and personal coordination between government officials and key individuals of SOE enterprise leadership. The guanxi culture between government officials and entrepreneurs has been strengthened within the socialist institutional system.;The Weberian model of modernization presumes that economic progress requires the replacement of traditional institutions and values with modern bureaucracy and a culture of law. Yet, China's state industry system has not broken away from the traditional Chinese pattern of reliance upon informal-personal relationships and their networks in political and economic activities.