How Hong Kong cleaned up its capital markets

Any discussion of corruption in China invariably starts with the concept of “guanxi” and the integral role it plays in Chinese society. Literally meaning “social relationship” or “social connection,” it is ostensibly analogous to Western concepts of “old school ties” and alumni networks but operates more subtly and extensively, and the line between guanxi and bribery is all too often unclear. It can be used to describe the personal connection between two people by which one is able to prevail upon another to perform a favor, or an entire network of connections on which an individual can call and through which he can exert influence.

Guanxi is typically established through the provision of personal favors, hong bao (red packets containing money), gifts, entertainment or other benefits to which the recipient ascribes value, thereby activating obligations of mutual assistance between the parties. In China and throughout Asia generally, these ingrained customs and practices are further underlined by the financial and political influence accumulated by, and concentrated in, the hands of a few powerful families.