Secretaries suddenly become senior officials in state firms. A lower-level employee at Huaxia Bank illegally loans 345 million yuan (HK$324 million) to a local company. On a bigger scale, officials in Shanghai rise to the pinnacle of power in China.
All because of the strong power of guanxi.
Given the tight control wielded by a small group of officials, big money is often at stake, and deals are cobbled together with the financial equivalent of bubblegum and paper clips. With many such deals, one can only guess at the real story. A couple of years ago, the Chengdu Lianyi Group, property developers, agreed to sell 40 per cent of the company to Guangdong Feilong for 68 million yuan (HK$63.9 million). Feilong soon fell behind in its instalment payments and signed a contract returning the shares. But Chengdu later received a call from a Guangdong bank, Huaxia, asking for repayment of a 30 million yuan loan - which it had never borrowed. It turned out that Guangdong Feilong had promised its Chengdu shares as collateral and was able to get away with it because of the tight connections between top officials. Feilong presumably pocketed the money.
While these deals make the headlines, guanxi - the Chinese word for relationships - often works at much lower levels, providing the grease to oil the system. That raises the question, how much is guanxi worth to the average citizen?
The answer could go a long way towards explaining how China is changing as it moves from a state system to a market-oriented economy. Who are going to be the winners and the losers? What role will the communist party play as China changes its stripes? Will guanxi be relevant in the future or will sheer talent prevail?
Two economists at Oxford University, John Knight and Linda Yueh, try to put some meat on the bones of the question of guanxi in a paper entitled 'The Role of Social Capital in the Labour Market in China'.
