Can guanxi be a problem? Contexts, ties, and some unfavorable consequences of social capital in China

Social capital is generally believed to enhance the effectiveness of organizations in certain cultural contexts. However, even with substantial social capital in place, China, during its economic transition towards market systems in the past decades, witnessed problems stemming from underdevelopment and organizational dysfunction. To address this paradox, we delineate a unique type of networks-based social capital in China: dense strong-ties accompanied by sparse weak-ties. Drawing on extant literature, a conceptual framework is proposed to reveal the dynamics of the unique social capital set-up in the Chinese context: first, a view of how the country’s social capital system was formed under conditions of resource scarcity, and of how it was further modified by its unique Chinese cultural contexts; and second, an examination of how Chinese social capital led to certain unfavorable societal and organizational consequences—namely, market fragmentation, state intervention, and rent-seeking activities. Theoretical and practical implications are discussed.