After almost 3 decades of economic reforms, the role of the government in economic activities during China's transition has become a focal issue in social science research. However, consistent conclusion has not been reached yet. Some scholars believe that the political power is declining in economic life during the transition, while others hold a contrasting view. Starting from the debate, this study uses 2004 private enterprise survey data to show that nowadays guanxi with government officials still matters to a large extent, but the importance also varies a lot across different localities. The variation is then explained. The empirical results show that (1) guanxi with officials is perceived as important in particularistic institutions; (2) social networks outside the political syste...[ Read more ]

After almost 3 decades of economic reforms, the role of the government in economic activities during China's transition has become a focal issue in social science research. However, consistent conclusion has not been reached yet. Some scholars believe that the political power is declining in economic life during the transition, while others hold a contrasting view. Starting from the debate, this study uses 2004 private enterprise survey data to show that nowadays guanxi with government officials still matters to a large extent, but the importance also varies a lot across different localities. The variation is then explained. The empirical results show that (1) guanxi with officials is perceived as important in particularistic institutions; (2) social networks outside the political system show no effect for institutional inadequacy; (3) those with prior work experience in government agencies attach less importance to guanxi with officials and (4) PCC members is positively correlated with perceived importance of guanxi with officials. Furthermore, the study also proves that local institutional adequacy is positively correlated with implementation of centrally imposed liberalization policy and negatively correlated with local officials' self-seeking behaviors.