Academic journal article Seoul Journal of Economics

Guanxi in Chinese Commerce: Informal Enforcement in Spanish Philippines

Academic journal article Seoul Journal of Economics

Guanxi in Chinese Commerce: Informal Enforcement in Spanish Philippines

Article excerpt

How did Chinese merchants remedy opportunism in a prevailing scenario of weak state enforcement during the Spanish period in the Philippines? The paper attempts to analyze 19th century historical accounts in elucidating how the utilization of guanxi sanctions provides useful Insights in addressing the gap between state enforcement and property rights violation. These sanctions constitute informal enforcement among Chinese merchants based on personalistic ties. With credible enforcement. Chinese principals could manage networks that facilitated merchandize trade throughout the Philippines. By the 19th century. Chinese networks consisting of Chinese merchants and agents became crucial in large scale wholesale and retail trade.

Keywords: Ethnically homogeneous middleman groups. Informal sanctions. Enforcement

JEL Classification: N85, D23, C61, L14, D86

I. Introduction

When Chinese migrants reached the Philippines, they discovered the vast commercial opportunities that came with the coming of the Spanish. Instead of transacting with individual pre-Spanish polities at port, access to commerce in the entire archipelago was now possible under a com* mon colonial policy. The challenge was, the exchange environment was marked by weak property rights enforcement and worse it was predatory against the Chinese - formally and informally. Institutional action against the Chinese included trade restrictions, banning of commerce, segregation, expulsions, massacres and various financial levies. With the onset of the colonial economy, the potential economic gains were high but so was the exchange risk.

Wickberg (1965, p. 68-9) analyzed 19"' century Chinese commerce in the islands and finds that it was contingent on a combination of characteristics associated with success (e.g. patience, pioneering spirit); the deft utilization of credit; and an effective economic organization. However, Wickberg gave more importance on the use of financing and 'patronage organization' as factors in Chinese success.1 This paper focuses on the manner with which the Chinese organized themselves informally. In particular, we look at gucuvci. a Chinese social construct based on personalistic ties, as a source of informal sanctions that stabilized contracts.

A. The context of guanxi as a social construct

Rooted in Confucian ethics (King 1991), guanxi is known in China as a 'way to get things done,' which refers to relational modes in dealing with people. The meaning of the word guanxi has many dimensions (Tsui, Farh, and Xin 2000). Guanxi denotes a state of connectedness among parties. In regard to relationships in particular, guanxi can refer to the quality of relations shared by parties. On the other hand, guanxi can also refer to the parties in the relationship such as the individual, the firm, connected parties and even a network (Chen and Chen 2004). The common factor in the various definitions is the reference to a type of interpersonal relationship that involves particularistic elements (King 1991). This paper refers to guanxi as a personalistic tie based on common experience or heritage such as kinship, dialect or geographical origin. Contracts based on these ties are defined as guanxi contracts while networks in which the enforcement of agreements operates are referred to as guanxi networks (Jacobs 1980; Tsui, Farh, and Xin 2000; Chen and Chen, 2004; Landa, 1998). Punishment or retribution based on guanxi shall be referred to as guanxi sanctions.

Guanxi becomes significant as we are concerned with how Chinese merchants in the Philippines used informal sanctions in protecting contracts from the propensity to violate agreements (i.e. the commitment problem). These sanctions are based on deliberate particularization of exchange relations within ties of kinship and ethnicity (Landa 1981, 1999).

B. Guanxi as Informal Enforcement

We consider guanxi sanctions as enforcement in the context of underdeveloped institutions in the exchange environment. …

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