China Characteristics -
"Guanxi" is the most overused term in the
China business environment. The term is central to doing
business in China because the concept and practice of
Guanxi is so central to the Chinese context. As the
Chinese do consider Guanxi important, so the foreigners
must learn, adapt and understand.
The logical place to start is with a
definition. Guanxi translated means 'relationships’.
This understanding, in as far as it goes, is common to
all humanity and is not cultural specific. In China,
Guanxi is a system of interpersonal relationships that
has long historical and cultural roots. Guanxi is
understood and utilized by virtually every Chinese
person alive today in greater or lesser measure. The
basic underpinnings of the Guanxi system are the twin
understandings that, one, all things are relative and,
two, that people are the deciders of all things. This
worldview, as opposed to the concept of the rule of law,
is a fundamental distinction between how Chinese and
Westerners perceive the world and the appropriate
starting place to understand Guanxi. China has never
been a nation of laws. All of the Western philosophical
understandings that define the relationships between
individuals and the individual and the society are not
present in Chinese society except in the form of
shallow, recent transplants. The deeper current still
predominates and perhaps always will.
Guanxi is used to accomplish the specific
ends or objectives of the people involved. The
relationships that are used can range from familiar
family-based relationships to familiar commercial-based
relationships. We say "familiar" in the context that a
Westerner might understand these. It is the immense
sophistication and multifaceted complexity of Guanxi
that foreigners find difficult to comprehend. This
complexity has evolved over the centuries because China
is, and always has been, an intensely political society.
This has not changed under Communist rule. In fact, it
can be argued that Communist rule has even intensified
the political nature of base Chinese culture.
Practically speaking, imagine a giant
three-dimensional web that rolls across time and life
circumstances. Each thread in this web is one Guanxi
relationship. Some of these threads are thicker and more
central, some are mere filaments at the edges. While
there will be substantial interconnection, there are
also major, even the majority of the sections, that
interconnect only through the hub — the individual. To
the extent that an individual can maximize the number of
these thicker threads, reduce non-hub central
interconnections and expand the overall size and reach
of the entire web, value and utility are gained.
Now, each individual has such a web.
Really, virtually every Chinese person alive today is an
active participant in this system — it is cultural in
nature. And there are mutually recognized ways to
"trade" on these webs, or to utilize each other’s webs
for mutual benefit.
Thus, every time two Chinese people meet
for the first time (provided there is a substantial
interaction) at least one significant part of the
conversation will be centered around the exploration,
measuring and evaluation of the mutual Guanxi
implications. This is a fundamentally practical exercise
that allows each to place themselves and the other into
the wider context. Higher level operators of Guanxi in
China can, and do, build their entire careers around
their ability to organize and utilize their Guanxi web.
Guanxi operates as essentially a private
favor exchange. If I can organize a chain of value
exchange among my web threads that results in getting
something that I want, then I can execute a Guanxi
transaction (or chain transaction). The system is
lubricated by the concept of a Guanxi Debt. I can
utilize the system for short-term needs certainly, and
that is a very common aspect of the system. But I can
also incur or accrue Guanxi that (if managed wisely) can
be utilized for larger purposes at a later time.
Naturally, such favors often have financial components.
Even the outright sale of Guanxi is common. A key aspect
to understanding this is that Guanxi is like your brain,
or your muscles. It must be used in order to grow strong
or stay sharp. Since everybody is operating within the
same system, if I develop some particularly important
Guanxi thread, but then don’t use it, I will lose it.
This is because the Guanxi thread is established by
mutual agreement. The opposite party has also made his
or her calculations and essentially agreed to have this
Guanxi. They are obviously then counting on it deriving
some benefit for them. If this interaction is not
forthcoming, then the thread will weaken until finally
is no longer exists.
It also follows then that I must clearly
understand the essential nature of every relational
thread in order to use them effectively and maintain
them. Since every relational thread is a person in a
complex environment, this task (requirement) is
enormously complicated and taxing. Now we have
illustrated, very briefly and inadequately, the truly
political nature of Guanxi and Chinese culture.
Guanxi for Foreigners
OK, that will have to do for now in the
definitional sense. So what does it all mean for
foreigners doing business in China? One of the biggest
problems is that foreigners often operate in ways that
are incompatible with the Guanxi system. Likewise,
Chinese often mystify their foreign counterparts with
their behavior. Much of this, but not all, can be traced
to the Guanxi system. It is not necessary (usually) that
foreigners be able to play the Guanxi game. In fact it
is usually a mistake to even try. But understanding its
nature can help in many ways to smooth events and
To this end we illustrate below some
practical (or not so…) examples of ways this system
involves itself in the life and process of the foreigner
(and thus ultimately the foreign business) working in
China. Hopefully, through these examples, a fuller
measure of the true nature of Guanxi and its
implications can be gained.
You are part of Others’ Webs:
This is the first essential lesson. As a
foreigner or a foreign business in China, you have
already entered into the Guanxi underworld. You are
already part of all the calculations that all of the
Chinese people around you make with regard to their web.
Remember this as you interact in the Chinese context. It
is important to understand the nature of the
expectations that those around have of you in the Guanxi
context. By meeting or denying these expectations, you
will change the nature of the relationship. But be
cautious, read on.
Guanxi is essentially Selfish:
It is not ‘evil’, or even ‘bad’ — but it
is selfish. All Guanxi interactions take place with the
understanding that the individual’s Guanxi Web’s total
net worth is increased by some measure. Yes, friends
"help" friends, and family "helps" family, but these
actions incur Guanxi debts. Only occasionally are Guanxi
transactions undertaken that incur negative net Web
worth — and these are almost always special
circumstances involving family members or special old
Manage the Guanxi Scales:
The Guanxi Debt system has been alluded
to numerous times above. Among some of the more
experienced foreigners in China, we call this the Guanxi
scales. The idea that one can owe and be owed Guanxi is
important. There are a couple of important things to be
said in this respect. The first is that an effort should
be made not to go into Guanxi debt very heavily. The
nature of the return call on this debt is by the nature
of the system unknown. Given the levels of
misunderstanding that are typically present between
Chinese and foreigners, this is often a recipe for
trouble. Second, it should be remembered that Chinese
often discount their Guanxi debts to foreigners. This is
because the vast majority of foreigners are in China for
only a short period of time. This means that the
foreigner should not "count" on his or her Guanxi too
much. The third point is a reflection of the second.
Because many (most) Chinese see the foreigner as
transient in their environment and discount any Guanxi
debt incurred, they are more willing to incur such debts
— with the calculation that they will "expire" shortly,
or can simply be reneged upon.
Distinguish clearly between
Guanxi & Corruption:
As noted above, and as would be expected,
Guanxi can and often does, have a financial component.
The Western concept of corruption does not offer the
nuance of circumstance needed to distinguish between a
normal Guanxi transaction and corruption in the Chinese
context. The best way for a foreigner to avoid this
problem is to simply avoid (to the extent possible —
much is outside of your control) Guanxi transactions
that have significant financial components.
Carefully & Sparingly
Beware the Guanxi Merchant
China is currently in a unique point in
its economic transition. The Guanxi system exploded into
rampant corruption in the late 1980s and is only now
being moderated. This presents a clear problem for
foreigners operating in China. In the first instance,
institutional "skimming" has long been a part of the
Chinese system, and consequently part of the Guanxi
system. The explosion in graft is directly related to
this historical pattern, but greatly exacerbated by the
manipulation of state-approved monopolies and
state-owned assets. Add to this the rise of "new elite"
— i.e. those whose main Guanxi threads lead directly to
some portion of the pots of gold (state-approved
monopolies, state-owned assets & direct government
expenditures). Thus the traditional ethic of the Guanxi
system has been twisted substantially toward the ethic
of get rich quick. And thus was born the modern Guanxi
Merchant. The Guanxi Merchant can "fix" or "arrange"
almost anything — for a price. The price is directly
related to the economic value of the "problem" at hand,
or in less clearly defined cases, by the mysterious
value of the Guanxi utilized.
The fact that the current situation is
improved markedly does not make these Guanxi merchants
any less annoying. What is worse is that sometimes they
actually can do what they claim. Thus the issue becomes
even more complicated because so many claim to have this
ability, which by its very nature is difficult to verify
and often times ethically borderline, and some, but not
all, of them actually do have this ability.
What’s to be done?? In general, stay away
from them. More specifically, understand that what they
are doing is actually utilizing a system that is
standard and accepted in China. In many cases the same
ability to utilize this system will exist in-house or
with people and organizations where a normal business
relationship already exists. At the very least it should
be possible to determine the actual nature of the issue
at hand without engaging some Guanxi Merchant.
The problem is that there are in truth,
many problems or situations in China that require Guanxi
to address and resolve. Other avenues of course exist,
but they are slow and capricious (i.e. the courts,
administrative relief, etc.). And then there are the
ethical issues of paying someone to pay someone to
resolve a problem that was likely caused by someone
receiving payment from someone else to manipulate
something for economic gain that may have been
marginally legal at best to begin with. Wow, got that??
If one must use a Guanxi Merchant — never
use an individual. The most common Guanxi Merchants are
the Law Firms. The practice of law in China today is
essentially nothing more than Power Guanxi. The rest
will be in some kind of "consulting" company. Some of
these will take ethical considerations seriously and
perform a mostly PR and lobbying role, helping to
expedite and prod a process along, and making sure that
your problem is in front of the correct people in the
first place. Typically your problem is instead stuck in
the wrong place, which is usually the persons or
organizations in partnership with the problem in the
first place. That is indeed a useful and valuable
Others are there simply to bribe. And
they take a fat skim off the top.
Extreme caution must be exercised when
selecting a Guanxi Merchant.
Getting (some) things done with
The first thing to
remember is that this is a difficult system to use for a
foreigner. So the best and first practice is to not use
it, or at least keep it small and simple and innocuous.
The second thing to
remember is that your business associates and staff all
know how to use it — so the first thing to do is to
require them to deal with the issue. At least they
should be able to figure out what the reasonable range
of root causes is and the corresponding range of
solutions might be.
The third thing, if the
problem really has no other recourse, is to exercise
serious caution in engaging a Guanxi Merchant.
Perhaps the best
solution is to search out and maintain several
relationships of your own — but with foreigners who have
in-country experience and are established
and reputable. Preferably their experience is in RMB
(Chinese Yuan) business, directly on-the-ground stuff.
When situations arise — tap their experiences and
But then remember that you have
just incurred a Guanxi Debt.
About GCiS China Strategic Research
GCiS (www.GCiS.com.cn) is a China-based market research and advisory firm focused on business to business markets. Since 1997, GCiS has been working with leading multinationals in sectors ranging from technology to industrial markets, medical, chemicals, resources, building and constructions and a few others.