Though many professionals and investors are familiar with the Japanese keiretsu or the South Korean chaebol, fewer are familiar with Chinese qiyejituan (business groups). While they have received less attention (to date) than their counterparts, the influence of Chinese business groups is considerably more profound.1 This is evidenced by the overall dominance of qiyejituan.2

Figure 1 – Qiyejituan Structure

Chinese business groups are characterized as “coalitions of firms, bound together by varying degrees of legal and social connection, that transact in several markets under control of a dominant, or core firm.”3 The Chinese State Administration for Industry and Commerce more quantitatively defines a qiyejituan as a group where the parent firm has a capitalization of more than 50 million yuan,4  five or more group members, and total group capitalization of at least 100 million yuan.5  The firms within qiyejituan are related by means ranging from direct equity ownership to connections that are vastly more informal (See Figure 1).

Business groups operate in the same way as members of a consolidated group in the USA, meaning that group members benefit from intragroup transactions and financing. In fact, interfirm financing among business groups is so important that business groups generally have a firm solely dedicated to facilitating intragroup lending.6  Essentially, qiyejituan resemble consolidated groups in the United States, merely lacking the requisite equity ownership.

Figure 2 – Qiyejituan hierarchy

Business groups operate at three distinct levels and maintain a form similar to   pyramids with the relative opacity of icebergs:

  1. At the top, there are a relatively small number of core firms (at the beginning of 2009, there were 2,971 recognized business groups operating in the PRC);
  2. First-tier subsidiaries comprise the second level (at the beginning of 2009, business groups directly owned over 30 thousand subsidiaries); and
  3. The tertiary level consists of other affiliated firms (these firms operate as part of the group but are not controlled through direct equity ownership).

Beyond explaining substance and form, contextualizing qiyejituan requires explaining why they exist and how they fit within the Chinese cultural context.

The Need for Groups

Business groups form for various reasons, one of which is compliance with regional laws. For example, if a firm wants to expand into a new province, the new province requires the firm to do one of two things: form a subsidiary in that region or amend its charter to include operations in that province.7  Chinese firms generally choose to incorporate a new subsidiary or find an affiliate in the province, a simpler solution than amending its corporate charter. Business groups forming in order to comply with regional laws tend more closely to resemble consolidated groups in the United States than those forming due to economic factors.

Beyond complying with China’s legal system, firms also group up for economic reasons, i.e. overcoming the difficulties associated with being a part of an emerging economy.8  Underdeveloped capital markets lack the requisite infrastructure and institutional professionals needed to ensure the efficient allocation of capital. The inefficient allocation of capital tends to make financing more expensive, if available at all. Thus, grouping up allows firms to achieve greater access to financing in two ways:

  1. Grouped firms have greater bargaining power than they would individually; and
  2. Business groups can engage in intergroup financing.

Accordingly, current research shows that members of the business groups tend to achieve better financial results and bear less risk of financial distress than their non-affiliated peers.9  This stems from greater realization of potential economies of scale and cost savings. Finally, grouping allows the members to compete more effectively with foreign and domestic competitors.10

Weaknesses of Qiyejituan. While there are many benefits associated with group membership, the fact that qiyejituan operate as a group leads to the propping up of underperforming firms.11  Subsidizing weaker firms is an example of inefficient capital allocation, which results in high-performing firms lacking resources to invest in profitable projects. Consequently, grouping up to save weaker firms can come at the expense of the collective well-being.

Cultural Context

The proliferation of business groups in fully developed economies (e.g., Japan and South Korea) demonstrates the need to consider additional explanations for the formation of business groups. Chaebols and keiretsu are remnants of a time without adequate infrastructure. Their continued existence demonstrates the need for additional explanations for business groups. One convincing explanation for their consistent use stems from the fit between qiyejituan and the cultural values of long-term orientation, collectivism, and relationship-based cultures.

Long-term Orientation. The Global Leadership and Organizational Behavior Effectiveness (GLOBE) study places China as part of a cultural group referred to as Confucian Asia.12  The countries included in the Confucian Asia cultural sub-group tend to display significantly greater levels of long-term orientation than those of other groups (e.g., the United States only scores a 26).13

Figure 3 – Confucian Asia’s Cultural Values, Source: Hofstede Insights

Hofstede Insights, a cross-cultural research group, defines long-term orientation as describing “how every society has to maintain some links with its own past while dealing with the challenges of the present and future.” Given China’s score of 87, we know that tradition represents a significant factor in the decision-making process. The long-term inclination leads to an abiding trust in tried-and-true methods. Keister posits this inclination led the Chinese government to encourage Chinese firms to form groups after seeing the success of keiretsu in Japan. Given that qiyejituan have continued to achieve great success, it is likely that we will see Chinese firms form business groups—even after the Chinese economy and markets have fully developed.

Relationship-based. Research performed by Erin Meyer indicates that China is one of the most relationship-based cultures in the world. Relationship-based cultures prioritize the building up and maintenance of business relationships as a prerequisite to doing business. The importance of relationships in the Chinese business world14  is demonstrated in the cultural imperative placed on guanxi (the practice of building relationships). Although guanxi translates to mean “relationships,” it is far more nuanced in practice. Guanxi is characterized as being long-term oriented, cultivated over “continuous, long-term association and interaction”15—representing “the totality of a relationship between two business partners and as being mainly utilitarian in nature.”16  Additionally, Luo (2014) describes guanxi as “the concept of drawing on connections in order to secure favors in personal relations” and that the end result of guanxi is the formation of “an intricate, pervasive relational network….” Thus, the development of qiyejituan follows the network of guanxi, representing a natural outcome of strong relationships between firms’ owners.

Collectivism. China scores 20 on Hofstede’s Individualism-collectivism index, indicating a predilection for communal well-being as opposed to individual gain seeking. Although collectivism tends to refer to one’s individual network rather than the corporate-level network, the importance of groups and community is a salient part of the Chinese psyche. The propensity to consider the collective group’s well-being makes Chinese firms more predisposed to forming and joining groups than their peers. The reliance that Chinese individuals place on “community” leads to an interdependence, which is reflected in qiyejituan.

While many could argue that business groups represent a network of relationships based on convenience, the fact that business groups “prop up” weak or struggling firms displays the imperative placed on the overall well-being of the group and its group members. In fact, research shows that members of qiyejituan have lower cash holdings than those not belonging to a group, indicating that they are lending to struggling members in the group.17 Group members have the philosophy that all members will succeed or fail together.


The communal nature of Chinese society combined with the legal and economic environments provides fertile ground for the growth and proliferation of qiyejituan. Americans conducting business with firms domiciled in the PRC need to understand the nuances of the Chinese business environment. Using this knowledge, foreigners will be able to evaluate properly their prospects of competing with qiyejituan—failure to do so will lead to being ganged up on.


  1. As of 2009, business groups employed roughly 33 million individuals.
  2. Three state-owned qiyejituan are included in the top five of Fortune’s Global 500: State Grid, Sinopec Group, and China National Petroleum—earning revenue of $315,199 billion, $267,518 billion, and $262,573 billion respectively (Fortune’s Global 500)
  3. Keister, L. A. (2009). Interfirm relations in China: Group structure and firm performance in business groups. American Behavioral Scientist, 52(12), 1709-1730
  4. Around $7.5 million
  5. Ma, X., & Lu, J. (2005). The critical role of business groups in China. Ivey Business Journal, 69(5), 1-12
  6. Ma, X., & Lu, J. (2005). The critical role of business groups in China. Ivey Business Journal, 69(5), 1-12
  7. Ma, X., & Lu, J. (2005). The critical role of business groups in China. Ivey Business Journal, 69(5), 1-12
  8.  The underdevelopment of capital markets and legal systems tend to be among the more pressing difficulties facing new and growing businesses. (Khanna, T., & Palepu, K. (2000). The future of business groups in emerging markets: Long-run evidence from Chile. Academy of Management journal, 43(3), 268-285)
  9. He, J., Mao, X., Rui, O. M., & Zha, X. (2013). Business groups in China. Journal of Corporate Finance, 22, 166-192
  10. White, R. E., Hoskisson, R. E., Yiu, D. W., & Bruton, G. D. (2008). Employment and market innovation in Chinese business group affiliated firms: The role of group control systems. Management and Organization Review, 4(2), 225-256
  11. Ma, X., & Lu, J. (2005). The critical role of business groups in China. Ivey Business Journal, 69(5), 1-12
  12. GLOBE lists China, Hong Kong, Japan, Singapore, South Korea, and Taiwan as part of Confucian Asia.
  13. Hofstede Insights. (n.d.). Country Comparison. Retrieved March 10, 2018, from
  14. Guanxi  degree to which relationships dominate the Chinese business world  in the importance of guanxi, which 42 percent of Chinese people view as very important from a socio-business perspective (So and Walker, 2006. Explaining Guanxi: the Chinese Business Network, Routledge, London)
  15. Luo, Y. (2014). Guanxi and Business. Retrieved from
  16. Luo, Y. (2014). Guanxi and Business. Retrieved from
  17. Cai, W., Zeng, C. C., Lee, E., & Ozkan, N. (2016). Do business groups affect corporate cash holdings? Evidence from a transition economy. China Journal of Accounting Research, 9(1), 1-24