By Shawn He Yuxun

You might have heard of the Chinese word guanxi (pronounced guan-shee, literally meaning "relationship" or "connection") frequently hyped by many China consultants or "old China hands."

But don't relationships and connections play a role in business everywhere? Isn't this what "networking" is about? Is guanxi different? If so, how? And to what degree is it a "guarantee" for success in China? Is it a pervasive part of the business culture in China or merely "chic" among China consultants?

From the 1950s until the 1980s, every aspect of China's economic activity was planned, controlled and operated by the government. There was no private ownership of any property or asset, and, consequently, no profit motive for individuals or enterprises. The government would allocate everyone a pre-defined slice of the "big pie." (Incidentally the term for this in China -- where rice rules the dining table -- was da guo fan, or "rice in a big (communal) wok"). If any party wanted more than what was allocated to him/her, it meant circumventing that system and getting someone in that "allocation chain" to provide a special favor.

People were obliged to sacrifice their individual interests for those of society. Since any act of favoritism was a serious offense both legally and ideologically, those with influence would only risk their reputation, career or livelihood (or more) for those with whom they had extremely strong ties, or guanxi. Very strong guanxi were referred to as ying (hard) or tie (iron-like).

A system was effectively created in which anyone could leverage whatever resource or asset within their control to barter with someone else for a return favor in the future. To minimize the risk of "default" on these debts, this "barter" system only functioned within one's "iron guanxi" network. (I will use Guanxi with a capital G to distinguish this "currency" of mutual obligation from ordinary interpersonal relationships, or guanxi.)

When people sought such Guanxi in a hurry, they would say I need to "pull some relationships", or in Chinese, la Guanxi, pronounced la-guan-shee. (Interestingly, the English expression "pull strings" means something very similar.) Because you could never practically develop Guanxi in a short time -- it was an exceptional type of relationship that only existed among close relatives, friends and associates.

For obvious reasons, at the time la Guanxi was always coupled (and almost synonymous) with zou houmen, which literally means "enter through the backdoor."

Guanxi in today's China business culture
In the West, having connections, while very important, is usually not a sufficient condition on its own, nor even necessary in some circumstances, to accomplish a business objective. Sound business fundamentals would be prerequisite to doing a deal. A good preexisiting relationship only serves to facilitate a transaction that makes good business sense in the first place.

When China first embarked on economic reforms in the late 1970's, since there was no existing market-driven system to guide the economic flow, and since most transactional entities were state-owned, business was predominantly initiated through the Guanxi system. That was the only proven channel for one economic entity, be it an individual or a company, to interact with another that had not been a contact under the old system of government mandate.

Throughout the 1980s and into the 1990s, having Guanxi alone proved to be a sufficient, and in many cases indispensable, condition for getting business done, regardless of the fundamentals. With Guanxi, a completely unqualified person could land a very important job. Or, a company with no track record whatsoever could be awarded massive contracts. You get the picture...

As the economy has become increasingly marketized, privatized and competitive, the value and effectiveness of the Guanxi system has greatly deteriorated. In industries that have been substantially deregulated or privatized, or where there is vigorous competition, business is business, and Guanxi has been neutralized or marginalized. The role of relationships or connections now resemble that which we find elsewhere.

During an AeA event co-sponsored by MeetChinaBiz in July 2007, Greg Shea, president of United States Information Technology Office (USITO), a Beijing-based US advocacy group for the information and communication technology industry, described the state of Guanxi in those sectors: "Don't let those consultants scare you into thinking you'd still need Guanxi to play in that market nowadays. It is [nonsense, nonsense, nonsense]."

That same advice holds true for importing most any consumer product from China.

© MeetChinaBiz, 2002-2007. All rights reserved.

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One person has commented on this article.

 1. Stupid Hat
Guest User, Unregistered

My experience would suggest that the actual current situation lies somewhere between the extremes of popular hype about guanxi on the one hand, and the Mr. He's article on the other.

Certainly, the importance of certain types of guanxi is fabulously overstated. For instance, the cultivation of relationships with government officials as a risk management tool is very common among Western companies and appears to be about completely useless. These types of relationships may be useful for facilitation of daily operations or for approval of new types of operations, but as a risk management tool are ineffective. If something goes wrong, no official is going to go out on a limb for a company(particularly foreign) no matter how many times he has been feted at the local KTV. A similar nonsensical strategy is the pursuing of relationships with Ministry level officials in Beijing. I have seen many cases where companies were facing an issue in some city and looked to their relationships in Beijing for assistance. Without fail, these relationships proved entirely ineffectual largely due to the lack of real power held by these ministries.

However, with this said, relationships continue to hold a far greater level of importance in Chinese business than they do in the West. I have several quite wealthy acquaintances whose job it is to simply maintain relationships. They spend all day and night making "friendly phone calls", having coffee, having dinner, holding parties, singing at KTVs with their high level business "friends". They are then paid a "commission" by companies seeking access to these friends. I had a detailed conversation with one very Western aware of these acquaintances who admitted that while she may pursue a wide variety of social entertainment with these "friends", the nature of the relationship was very far removed from a Western definition of friendship. It is understood by all parties involved to be transactional in nature.

 Posted 2008-03-05 04:42:31

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Comment(s) :	[quote=Guest User]My experience would suggest that the actual current situation lies somewhere between the extremes of popular hype about guanxi on the one hand, and the Mr. He's article on the other. Certainly, the importance of certain types of guanxi is fabulously overstated. For instance, the cultivation of relationships with government officials as a risk management tool is very common among Western companies and appears to be about completely useless. These types of relationships may be useful for facilitation of daily operations or for approval of new types of operations, but as a risk management tool are ineffective. If something goes wrong, no official is going to go out on a limb for a company(particularly foreign) no matter how many times he has been feted at the local KTV. A similar nonsensical strategy is the pursuing of relationships with Ministry level officials in Beijing. I have seen many cases where companies were facing an issue in some city and looked to their relationships in Beijing for assistance. Without fail, these relationships proved entirely ineffectual largely due to the lack of real power held by these ministries. However, with this said, relationships continue to hold a far greater level of importance in Chinese business than they do in the West. I have several quite wealthy acquaintances whose job it is to simply maintain relationships. They spend all day and night making "friendly phone calls", having coffee, having dinner, holding parties, singing at KTVs with their high level business "friends". They are then paid a "commission" by companies seeking access to these friends. I had a detailed conversation with one very Western aware of these acquaintances who admitted that while she may pursue a wide variety of social entertainment with these "friends", the nature of the relationship was very far removed from a Western definition of friendship. It is understood by all parties involved to be transactional in nature.[/quote]
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