Expat Businessmen in China, Living And Dying By Guanxi

Anyone coming to China will soon become familiar with the term guanxi. While guanxi is often translated as “connections”, it is more than that. To people in China, it means someone up high who can grease the skids for you, who can wave a magic wand and make everything all right, a person who can accomplish for you what was otherwise impossible. As such, guanxi is often thought of as something that can mean the difference between success and failure in a business venture.

However, the China Law Blog throws cold water on any foreigner who thinks that somehow guanxi is the secret to successful business deals in China:

Do not rely on guanxiI am convinced that our clients who never use the word “guanxi” have a ten times higher China success rate than those who do. This is not because having good relationships in China is not important — it most emphatically is. Rather, it is because having good business relationships is important everywhere, not just in China, and those who use the word guanxi seem to use it as an excuse for abandoning common business sense. As in, “Why did you send them $500,000 without a written contract?” Answer: “Guanxi.” If you are planning to set up a long-term operation in China, you should cultivate important connections and a network of useful connections, just as you would do in Amsterdam, Chicago, Sydney, or anywhere else. But if you are buying a container of stuffed animals or bathroom fixtures, your time would be better spent inspecting the goods and negotiating solid sales agreements. Do not let talk about guanxi divert you from taking appropriate precautions and insisting on adequate protection

The advice here is exceedingly sound. However, it fails to explain adequately why guanxi is just a pipe dream for foreign businessmen in China.

The basic issue is that guanxi has some elements that are entirely missing from the usual western conception of “connections”.

The first of these elements is that guanxi is personal in nature. There is no such thing as merely business-related guanxi. If you do not have a strong personal relationship with someone in China apart from business, you do not have guanxi with them. Period. As guanxi is personal in nature, a person who acts because of guanxi may in fact be acting at cross-purposes or even against the interests of the government bureau or company he or she works for. This is why many China watchers see an inextricable link between guanxi and corruption. When you begin trading business favors that go against the interests of your company or that are against the law, then essentially you are engaged in bribery. Apart from the questions of ethics and legality, there is also the basic issue that most foreigners do not have any kind of personal relationship with Chinese people. Even when they visit with Chinese people apart from work, the main topic will be work, and the ties that bind the relationship together will be work. Thus, while a relationship may at times seem personal in nature by the foreigner, a Chinese person is likely to see the relationship as purely work-related. Few Chinese people actually develop any sort of guanxi with other people because of their jobs or business deals. Guanxi is instead developed in their personal lives, which are often closely guarded and kept separate from their work. Foreigners seldom see the personal side of most Chinese.

Second, guanxi is born from a strong sense of obligation. People in China do favors for others because they feel obligated to do so. One way of building a sense of obligation in someone else is to first do a favor for them. However, it is a mistake to think that by merely doing a small business favor–or even a big business favor–for someone in China, they will view themselves obligated to you. It could be that they will merely view you as a sap to be taken advantage of. The kinds of favors that build obligations in China are not the kinds that merely add pour cash into someone else’s pockets. In fact, a favor for someone’s company is unlikely to generate any sort of personal obligation at all. The kinds of favors that build obligations are those that are life-saving in nature–one-off, one-of-a-kind personal favors, favors that no one else was willing or able to do. Foreign businessmen are very seldom in any kind of position to offer this kind of favor to people in China.

Apart from those who have done big favors for them, Chinese people feel obligated to their close relatives, to people in the hometowns, and to people they went to elementary school with. A Chinese person who travelled to Beijing or Shanghai and made it big in business or government will be expected to do favors for his or relatives, close friends (which is pretty much restricted to the people he or she grew up with), and the people back home. Foreigners will seldom if ever fall into any of these categories.

Finally, guanxi is built on personal trust. Because of guanxi, a person may feel obligated to betray his company, to bankrupt himself, or even break the law in order to do a favor for someone else. Before taking on such a responsibility, it is only right to feel completely assured that the other person would do the same for you, if he or she were in the same situation. A person would have to know someone really well over a long peirod of time, then, before being willing to engage in a guanxi relationship with them. Most foreigners, on the other hand, have only been in China for a short time, and will soon leave and forget about everyone they knew in China. How can a Chinese person ever trust that such a foreigner will be there in the future, when he or she needs help?

The vast majority of foreigners, then, are deluding themselves if they think they have any kind of guanxi at all. In my experience, foreigners who talk of having guanxi are people who recognize that the system is basically corrupt, and who think that they can somehow use this corruption to their advantage, to get something otherwise too expensive or unobtainable. Any two-bit conman or grifter, whether in China or the US, would identify such a person as an easy mark. Unfortunately, such fools come to China by the planeload everyday. Some even write articles bragging about their business acumen and the virtues of guanxi, while their company is being fleeced for millions of dollars.


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