Prof. Andrew Keay and Dr. Jingchen Zhao

Guanxi and Accountability in Chinese Corporate Governances: A Critical Analysis

Accountability is an essential aspect of corporate governance and it has been argued that the ‘wenze’ system of accountability in China comes very close, in the context of corporate governance, to the accountability systems developed in Anglo-American corporate governance. The paper examines the role of cultural factors, namely guanxi and its derivatives such as renqing (reciprocity), gift giving,  mianzi (face), and xinren (trust) in Chinese business culture, in corporate governance in China to determine what effect, if any, these cultural factors have on the operation and development of the ‘wenze’ system in large listed companies. The paper specifically considers whether the cultural elements affect accountability, and if so, how and to what extent.  It also explores whether these cultural factors are good, bad or neutral as far as the development of accountability in fostering good corporate governance is concerned We contend that there are enough indications that it is possible to employ legitimate, clean and sustainable guanxi within a wenze system in order to ultimately promote better accountability in corporate governance, and at the same time recognising that in certain cases guanxi will, as employed by some, fail to do so. It is acknowledged that guanxi can make the processes of corporate governance vulnerable, but on the other hand it has the potential to fulfil an important role in fostering accountability, especially in the absence of effective law and its enforcement. Therefore, the paper’s analysis demonstrates also that guanxi is a double-edge sword, for while it can be an impediment to accountability it is not totally inimical to ensuring that there is accountability. The paper advocates a realistic, functional and culturally sensitive corporate governance accountability system in China, under which guanxi and its derivatives will not be regarded as a substitute for accountability but will work within the ‘wenze’ system of accountability.