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Enterprise and Society Advance Access published online on April 22, 2008
Enterprise and Society, doi:10.1093/es/khm106
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© The Author 2008. Published by Oxford University Press on behalf of the Business History Conference. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org.

Government Control, Transaction Costs, and Commitment Between the Hongkong and Shanghai Banking Corporation (HSBC) and the Chinese Government

Qing Lu

QING LU is a lecturer at the Business Strategy and Management Sunderland Business School. Contact information: Sunderland Business School, The Reg Vardy Centre, St. Peter's Way, Sunderland, SR6 0DD, UK. Tel.: +44 0191 5153353. E-mail: Qing.Lu{at}sunderland.ac.uk.

We use the tools of transaction cost politics (TCP) developed from transaction cost economics and economic analysis, to analyze the business relationship building between the Hongkong and Shanghai Banking Corporation (HSBC), the largest and most successful foreign bank in China, and the Chinese government between 1949 and 1978. We demonstrate the value of the TCP-based approach to evaluating the specialized governance structure of commitment built on mutual dependency. In particular, we identify several transaction attributes that give rise to hazards: transaction uncertainty, the role of the government in the economy, and the strength of the supporting coalition. Our analysis also confirms that commitment built on the mutual dependency between the international company and the local authorities and between the international company's home country authorities and the local authorities did reduce the company's transaction costs by guarding against the local authorities’ opportunism.

Thanks for the constructive comments received from the referees and Hong Kong Monetary and Banking History Conference on this article's draft.


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