The purpose of this paper is to examine several institutional and individual factors impacting business dynamics of domestic private companies in China.
Basing the discussion on detailed interviews with business owners, the paper discusses recent and future effects of financial and legal systems, social networks, family support, informal institutions, and business people's educational and work experiences on domestic, private companies.
The unfolding interplay between formal and informal institutions appears to be crucial for the future of the private sector and the development of free market institutions. Business people, who benefit from the changing orders bring about by economic reform, now want formal institutions to provide stability and security. The Chinese state has played, and will continue to play, a central role in most institutionalization processes. In addition to further shaping and stabilizing their institutional framework, Chinese private companies appear to face the following challenges: acquiring more soft management skills, resolving the potential agency problem of companies with mixed ownership managed by families, and solving the latent succession problem for some family businesses that originate from the “one child policy.”
Although the paper focuses on institutional and individual factors that pertain to the Chinese private business environment and business owners, the findings of this study deepen the understanding of the development of private firms conducting business in transitional economies.
