Social capital is considered to play an economic role in labour markets. It may be particularly pertinent in one that is in transition from an administered to a market-oriented system. One factor that may determine success in the underdeveloped Chinese labour market is thus "guanxi", the Chinese variant of social capital. With individual-level measures of social capital, we test for the role of "guanxi" using a dataset designed for this purpose, covering 7,500 urban workers and conducted in early 2000. The evidence is consistent with the basic hypothesis. Both measures of social capital - size of social network and Communist Party membership - have significant and substantial coefficients in the income functions. Social capital can have influence either in an administered system or in one subject to market forces. It appears to do so in both parts of the labour market. Copyright (c) 2008 The Authors. Journal compilation (c) 2008 The European Bank for Reconstruction and Development.

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In urban areas of China, economic reforms were intensely implemented after 1984. We focus on two primary aspects of the reforms in the 1990s, those pertaining to the labor market and to wages. Based on original interviews and two unique household data sets, we investigate the effects of the reforms. Our first finding is that the components of annual income have changed, reflecting fewer subsidies and more diverse sources of income (such as self-employment), over the period from 1995 to 1999. By 1999, the wage structure reflects less seniority-based pay, allows for more discretion in rewarding non-productive characteristics (gender and Communist Party membership, for example) and also permits more productivityrelated pay (as evidenced by increased returns to human capital).