China's economic transition toward a market-oriented system should give rise to a legal-rational logic of resource allocation. A transition of this kind, if occurring, implies that guanxi rules, which are commonly understood to be informal and anti-rational, would decline. This hypothesis has been put forward with the attention to decision-making processes at the level of economic enterprises in Chinese cities (Guthrie 1998). In the context of labor markets, Hanser and Guthrie argue in their chapters in this volume that guanxi ties may have become less relevant among their interviewees.

I offer a counterobservation about the persistent roles of guanxi in China's emergent labor markets in the 1990s. My focus of attention is on the roles of guanxi in job changes in the 1990s, and my data come from a diverse sample of 100 individuals whom I interviewed in six Chinese cities in 1996 and 1997. This sample of individuals rejected my pre-study hypothesis about the declining significance of guanxi in China's emergent labor markets. Their stories speak in favor of an antithesis: Guanxi plays a persistent role in matching individuals to job slots in the 1990s. I will argue this is because China's emergent labor markets are full of “institutional holes” – a state of labor markets in which formal mechanisms are either unavailable or insufficient in connecting job seekers and prospective employers. Guanxi networks of intimate and reciprocal relations are the informal mechanisms to fill up these institutional holes, facilitating employment and reemployment processes in Chinese cities.