Why China Shall Not Completely Transit from a Relation Based to a Rule Based Governance Regime: A Chinese Perspective

• Author: Kun Luen Alex Lau,Angus Young
• Published date: 01 November 2013
• DOI: http://doi.org/10.1111/corg.12037
• Date: 01 November 2013

Why China Shall Not Completely Transit from

a Relation Based to a Rule Based Governance

Regime: A Chinese Perspective

Kun Luen Alex Lau and Angus Young*

ABSTRACT

Manuscript Type: Perspective

Research Question/Issue: This paper argues that China shall not completely transit from a relation-based into a rule-based

governance regime because the Chinese system of governance is the product of its rich heritage and entrenched value

system.

Research Findings/Insights: Relation-based governance has two dimensions. This f‌irst is apparent from the emphasis on

reciprocity and mutual obligations fostered between individuals and groups. The second is evident from inside an orga-

nization, where governance is hierarchical and paternalistic. This system of governance was inf‌luenced by Confucian

doctrines that are moral centered precepts used to regulate human behavior and relationships. Given that this governance

regime is interlinked to the Chinese culture, it is doubtful that China would completely abandon it in favor of a rule-based

system from the West.

Theoretical/Academic Implications: There are two key implications drawn from this article. First, in the absence of the

moral underpinnings of relation-based governance, this system is susceptible to exploitation. Individuals could take

advantage of relationships and relational networks to commit mischief or achieve personal gains through tunneling or

expropriation of company assets. Therefore, it is imperative to reinforce the ethical ideals of relation-based governance in

China. Second, since relationalism from China’s past and the laws transplanted from the West are key features of China’s

governance regime, it is important to explore hybrid solutions to lessen the possibility of bottlenecks and incongruities

emerging.

Practitioner/Policy Implications: Any proposed hybrid governance solution ought to be able to deal with potential

differences between the Chinese and the Western value systems as well as combine both regimes into an integrated

framework.

Keywords: Corporate Governance, China, National Economies, CSR Mechanisms, Governance Environments

INTRODUCTION

Martin Jacques (2012:563) wrote, “Thedesire to measure

China primarily, sometimes even exclusively, in terms

of Western yardsticks, while understandable, is f‌lawed.”

Such an ideological predisposition could be found in Li’s

(2002) assertion that China would transit from a relation-

based governance regime to a rule-based one. The evidence

supporting his claim is scarce and highly selective. In a

subsequent article, Li, Park,and Li (2004) took this argument

further by asserting that Chinese relation-based governance

is inferior to rule-based governance in the West. They cited

the industrial structure in China as not conducive to modern

industrialization because of the combination of a lack of

strategic planning, the highly restrictive nature of central-

ized decision making, and poor innovation and entrepre-

neurship. The problem with such a line of argument is that

the authors failed to give due consideration to the fact that

the West has recently experienced a series of crises in gov-

ernance, and thus could not be held up as a model for China.

Furthermore, Jacques (2012:563) alerted his readers to some

common prejudices from the West about China by noting,

“[T]he proposition that the inheritance must, as a precondi-

tion for success, include Enlightenment principles such as

*Address for correspondence: Angus Young,Hang Seng Management College, Hang

Shin Link, Siu Lek Yuen, Shatin, New Territories, Hong Kong, China. Tel: +852-

26475151; Fax: +852-26325092; E-mail: angusyoung@hsmc.edu.hk

577

Corporate Governance: An International Review, 2013, 21(6): 577–585

© 2013 John Wiley & Sons Ltd

doi:10.1111/corg.12037