Networks of social relations and underground economics: A study on a black market of bicycles in Shanghai

Abstract

Mark Granovetter emphasized the effect of ongoing systems of social relations on economic actions. This essay uses a black market of bicycles as a critical case, based on field work from 2004 to 2008, to study the ongoing interaction between the networks of social relations and the economic actions in the case. I conclude that because of the characteristics of economic actions in the black markets and their environment, individual black market bicycle dealers are faced with a conflict between limited inventory and diversified demands from different customers. However, at the level of all dealers, the inventory is sufficient. Thus, the key issue in the black market is how to deliver information on diversified demands to the right dealer. The networks of social relations can do this. These networks are not based on blood or geographical ties, but originate from economic actions in the black market. The dealers use la guanxi (try to establish a relationship with somebody) to establish initial networks of social relations and jiang yiqi (be loyal to friends) to strengthen them with ongoing economic actions. Because of their function concerning information and trust, the networks soon construct a reciprocal model of transactions, which reduces risks and raises profits. In addition, as information and trust are accumulated through ongoing economic actions, a cartel of purchasing and prices emerges, changes the market again, and further raises profits. In addition, the economic actions, which are based on intermediary activities and the rapid movement of information, prevent the networks from developing into a mafia. The networks can also prevent potential malfeasance in economic actions.