Mobilization of Personal Social Networks and Institutional Resources of Private Entrepreneurs in China *

Article excerpt

SINCE THE CHINESE COMMUNIST GOVERNMENT allowed the establishment of small private businesses (getihu) in 1978, the number of private businesses in the country has grown exponentially. This unprecedented rapid growth of private businesses has become the central machine that sustains the economic reform of China in recent decades. In 2000 there were 1.7 million private business establishments. Altogether, they hired more than 24 million employees and accounted for half of China's economic activity (Gregory and Tenev 2001).This trend of growth has shown no sign of slowing down. On the contrary, it continues to grow at a rapid pace.

The discussion of entrepreneurial activities in the transitional economy so far has been guided by two major perspectives. The "market transition theory" suggests that the development of market institutions leads to the growing importance of human capital in entrepreneurial activities, while the "power conversion theory" argues that businesses of party cadre benefit from the power associated with their political affiliation (for details, see the Symposium on Market Transition in the American Journal of Sociology published in 1996; Walder, 2002; Gerber, 2002). These studies have provided rich information about how institutional changes in the transitional economy shape entrepreneurial activities; for example, Wank (1999) explored how the close linkages between government and business require entrepreneurs to maintain close contact with the government. These studies have, however, been limited to discussing how individual entrepreneurs purposefully and actively interact with the institutions of society. In particular, there have been few studies that explore how individual entrepreneurs use their networks to obtain resources from different institutions.

Such an analysis is important for two reasons. First, this kind of analysis brings out the significance of actors in the study of transitional economy. The analysis treats individuals as agents with a set of purposive actions, rather than as individual behaviours reflecting larger social configurations (Coleman, 1988). The approach fully acknowledges the intentional calculation of individuals as they are facing the complexity of a changing environment and the importance of situating individual behaviours in context. The study brings individual actors back to the centre stage of transitional economy analysis. Second, this approach directly addresses the relative importance of various institutions in the transitional economy. Economic activities of entrepreneurs include a variety of efforts to obtain resources from different institutions. This approach not only informs us about the operation of the transitional market, but also provides information on the "hierarchy" of institutions in the transitional economy.

In this study, we address these issues by focussing on one specific entrepreneurial activity, namely, obtaining business resources. Obtaining resources is critical to all businesses because virtually no business can survive without securing the necessary resources. Studying this process provides a crucial lens to gauge the operation of private businesses in the transitional economy. In addition, it is an ideal opportunity to learn where entrepreneurs obtain a variety of information and resources.

To address the topic, we employ a unique data set about entrepreneurial activities collected in China. To understand how individual entrepreneurs obtain resources for their businesses, we focus on how they utilize the social networks embedded in various institutions to achieve their objectives. The focus helps to understand how individual actions contribute to the structural outcomes.

The rest of the paper is organized as follows: We first review theoretical issues related to the changes in work organization and political institutions as well as the functions of social networks in transitional China. We have attempted to integrate existing major studies on these topics in relation to resource mobilization by entrepreneurs in a transitional economy. …