China Business Knowledge White Paper Series - Where Guanxi Matters

 

HONG KONG SAR, Radar Seluma.Disway.Id,  -  China's financial services sector has experienced burgeoning growth in the past two decades. Hong Kong and Shanghai rank among the top 10 global financial centres in 2023, according to the Global Financial Centres Index 33. By the end of 2022, the country's financial institutions had a total of 419.64 trillion yuan (around US$57.57 trillion) in assets, increasing 9.9 percent year on year.

 

Coinciding with the rapid capital market development, initial public offering (IPO) activity has also risen sharply. PwC's Global IPO Watch 2022 reported the total amount of funds raised through IPOs in China's domestic markets constituted about 39% of the global proceeds last year, replacing the U.S. as the world's number one in terms of IPO proceeds for the first time.

 

Vibrant as other developed markets may be, China's financial industry is shaped by one important factor that makes it unique like no others in the world. Guanxi, a Chinese social concept of interpersonal connections with implications for the exchange of favours, has long been dominating its socioeconomic landscape. Previous studies define that guanxi connections are characterised by trust in family-like relationships and instrumental exchanges that run alongside affective bonds. Business networking in the West carries no such elements.

 

In the realm of finance, guanxi often plays a considerable role in shaping the behaviours of economic agents. While this purposeful networking behaviour has potential benefits, it can also bring undesirable consequences.

 

In this Chinese University of Hong Kong (CUHK) Business School white paper, we conducted a series of studies into how the guanxi culture has led to the development of a unique financial sector in China and examined the impact of guanxi between different actors in China's financial sector.

 

Fund Managers and Analysts Reciprocate Benefits

 

First, we look at how social ties between fund managers and analysts affect their behaviours and business decisions, and how they reciprocate the benefits they receive from each other. Financial analysts are important information intermediaries who provide useful market information and insights into financial data for identifying opportunities, ultimately influencing investors' decisions. Fund managers rely particularly heavily on financial analysts for information.

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