This paper investigates the role of personal relationships for doing business in the Greater Pearl River Delta, China (GPRD). First, it discusses the interplay of formal and informal (relationship-based) institutions based on institutional economics. Second, it describes the institutional environment for doing business in China, and in the GPRD in particular. Third, it uses data obtained from a survey among executives of Hong Kong electronics SMEs with business operations in the PRD to gain insights into their perceptions on the importance and the motives of using personal relationships for business in PRD in general, and on the impact of personal relationships on location and partner decisions for companies' production as well as innovation activities in particular. The results confirm the importance of personal relationships for doing business in the PRD and suggest companies rely on personal relationships for business not only for cultural reasons but also to cope with deficient legal and political institutions.