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Testing the power of social capital in business start-up finance: a survey analysis on China's private enterprises.

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Abstract

This paper tests the role of social capital in financing business start-ups in China’s private sector. It firstly examines the literature and proposes hypotheses. Then, based on a clearly defined cadre concept, it analyses the unpublished 1995 national survey on private enterprises in China, focusing on social capital of private entrepreneurs, their business start-up financing, and the association between start-up financing and their social capital. A surprising finding is that being a cadre or having close cadre connections does not confer better access to public sources for financing business start-up as the available literature claims. The reasons are then discussed. It is argued that being a cadre and having close connections with cadres are only two of the channels producing social capital. The widespread practice of guanxi may have contributed to the finding in the other ways.