Guanxi, literally meaning "connections," refers to the cultivation of personal relationships with a material gain in mind. In a business context, guanxi can take place between a firm manager and a government official whose decisions can have an impact on the firm. Business associates may also rely on guanxi, using their personal relationship to ensure that mutual obligations are met, a common occurrence in developing countries with legal systems that do not reliably enforce contracts. The strongest forms of guanxi develop between classmates, blood relations, and people from the same city or province when they are living in other parts of China. Foreigners can and do resort to gifts and other favors to create a sense of obligation on the part of the receiving party, but even under the best of circumstances they can never compete with these strong forms of guanxi.
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Discussion |
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Imagine that a Chinese friend advises you to host a dinner in honor of a Chinese government official whose good will is essential if your firm is to do business in his city.
{Dis: Would you do it?}
What if you learned that the expectation was that the dinner would be held at an expensive restaurant and that a large number of the official's colleagues would also be invited?
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One of the biggest mistakes that foreigners can make in China is to assume that the cultivation of guanxi alone will lead to success. Personal relationships in business matter everywhere, including the United States, and no one suggests that they can entirely replace good business sense. For every firm that has found success in China by relying heavily on guanxi, there are many more that have failed because their business plan amounted to little more than identifying key public officials and cultivating their favor.
The term "guanxi xue," or "guanxi studies" equates guanxi and academic knowledge with an intentional irony, and there are many Chinese aphorisms suggesting that guanxi is more important than other skills. The Chinese can be very critical of someone who uses guanxi extensively for personal gain, using words like "oily" to describe them. At the same time, however, they will often acknowledge the value of those skills, admiring the ingenuity of the means at the same time that they criticize the selfishness of the ends. The Chinese can also have mixed feelings toward the simple, ingenuous person at the other end of the spectrum who has no guanxi skills at all. While admiring the pureness of their morals, they will also lament their inability to get anything done in the real world. The vast majority of Chinese fall between these extremes. They may possess competent guanxi skills but will use them selectively and only when official procedures have failed. At the same time, they have a circle of friends within which favors are done out of genuine affection and where any expectation of reciprocity or material gain would be considered rude.
bute the enduring importance of guanxi to several factors. The first is the continuity of Chinese tradition, including heavy government intervention in the economy, a powerful bureaucracy and the freedom of local officials to interpret policies and regulations from the center. There is also a sense among many people--particularly those old enough to remember--that the breakdown of social and political order during the Cultural Revolution (1966-76) created the ideal conditions for the spread of guanxi. Finally, there is a sense that the complexity and speed of economic transition have outpaced the ability of written rules and official institutions to support it. By contrast, the government has frequently argued that the "foreign" values of selfishness and individualism have contributed to the guanxi phenomenon, a position that strikes a chord with Chinese who are already suspicious of foreign motives toward China.
As China has become wealthier and more urbanized, the concept of guanxi is increasingly seen as a vestige of traditional society and the worst aspects of socialism. To suggest that guanxi is still important can even be insulting to some managers and officials in China's largest cities. Guanxi is a laborious, time-consuming activity, and its practice contradicts the fast-paced, cosmopolitan image cultivated by China's coastal cities. Moreover, many educated Chinese see a stronger, rule-based legal system--which would take away the freedom of officials to interpret regulations in ways that can benefit them personally--as essential for China's continued development.
Many foreigners assume that the tradition of guanxi in China goes a long way toward explaining China's serious problem with corruption. It is certainly true that the guanxi-related exchange of gifts and favors would be considered bribery in most countries (and increasingly in many parts of China), but China's corruption problem is mainly the result of weak law enforcement, vague regulations that allow government officials to interpret them on a case-by-case basis, and its very prevalence, which gives bribe-takers a sense of safety in numbers. China's corruption record, while an embarrassment to its leaders and its citizens, is only average when compared to other large developing countries, including Russia, India, Brazil and Indonesia.
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Thinking Point |
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As a foreign manager in China, what would be the advantages to having a personal attitude toward guanxi that is different from your Chinese colleagues?
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Like individuals, firms in China have their own guanxi networks. State-owned enterprises are already firmly embedded in the old central planning system, and as a result they receive preferential treatment from the central government when it comes to accessing capital, human talent, supplies and markets. At the other end of the spectrum, private firms are the most vulnerable to bureaucratic interference, and not surprisingly their managers spend more time cultivating good relations with government officials. Those relationships can yield important benefits in the form of market access, warnings about sudden policy changes, and protection from punitive taxes and fines. In return, the government official might receive goods, cash or jobs for relatives.
