Guanxi - The key to doing business with the Chinese

The Research and Development Bulletin

Guanxi: the key to doing business with the Chinese
By Andrew Williamson, Visiting Tutor, Business School, City College Norwich

Introduction guanxi is one such.
This article is taken from Chapter 3 of my Conceptually, guanxi is what oils the wheels
book 'The Chinese Business Puzzle' which is of life or glues together society in general,
aimed at foreigners who wish to do business and business in particular in China; and of
with the Chinese, whether in China or at the various attempts to define it in practical
home, face-to-face or at a distance, during a terms, I commend the following:
long-term posting or on a flying visit x 'Relation(ship)', as between husband and
(Williamson, 2003). There, I introduce the wife, or governments: 'ties, connections',
relevant behaviours that underpin the as in social interactions (Concise
business practices of the Chinese as a Chinese-English Dictionary, 1986).
consequence of their philosophical, political, x 'Membership credentials, backdoor
economic, legal and social environments connections' (New Chinese-English
(dealt with in the previous chapters), Dictionary, 1996).
including guanxi. Since the rest of the book x 'A sort of quid pro quo, 'you scratch my
abounds with practical illustrations of how back, I’ll scratch yours' kind of
such behaviours specifically impact on Sino- arrangement' (Seligman, 1997, p.45); 'a
Western business dealings, this extract tit-for-tat relationship between two
includes only sufficient examples to clarify people' (Seligman, 1999, p.194).
general points and is, therefore, illustrative
x 'Something linking two people who in
rather than exhaustive.
some way have developed a relationship
of mutual dependence' (Wenzhong and
Background Grove 1991, p.61), to which I would add
Notwithstanding extensive research, this 'and trust', such as founded in attending
article is primarily based on my own in- the same school or university; or coming
country experience as Director for China of from the same geographical origin or
Commercial Union Assurance (now the lineage.
senior partner of Aviva) and my wife’s as a x 'A special personal relationship in which
British Council tutor; and subsequently as long-term mutual benefit is more
consultants to Farnham Castle International important than short-term individual gain
Briefing and Conference Centre, which has and contains the key elements of indirect
also endorsed my two books on China. relationship between two people through
proper introduction by a third party, and
Caveat direct relationship between two people
Although many Chinese are prepared to who trust each other and the contact
forgive your lack of expertise (especially the person … It is the mother of all
younger and better-educated ones who may relationships' (Wei-ping Wu and Li-Yong,
have travelled overseas and hence 2000, pp.192-193).
understand what it is like to be on the other In simple terms: guanxi is a form of nepotism
side of the fence) there are those who still lay akin to the old boy network or old school tie in
great store on adherence to the rituals of the UK, but with the added dimensions of:
gentlemanly politeness that distinguish the x Mutual and obligated dependency, as per
Confucian Superior Man; and for whom Confucius’ Golden Rule of reciprocity.
outward form may be more important than
x Lasting for life.
inward motive.
Hence, it differs from, and should not be
confused with, the Western practice of
Concept of guanxi
networking which tends to be superficial,
Many cultures and languages have ideas or short-term, and results-oriented.
words that are difficult to express or translate:

The Research Centre, City College Norwich 5

Volume 3 Number 2 June 2005

Good relationships are so important to the needs to develop into the latter, since
Chinese that they tend: 'personal' guanxi is of value only for as long
x Not only to treat them as a measure of as the relationship between the individuals
personal ability and influence; concerned remains mutually beneficial and/or
x But also to despise anyone who has no dependent. Otherwise, as soon as you or
connections, and reject them as only your Chinese counterpart move, retire or die,
half-Chinese. all that hard work has been in vain, and your
This applies equally to foreigners, whom the successors have to start all over again.
Chinese will expect to understand and follow This is not to say that your personal guanxi is
the rules of guanxi. Thus: the more a not important, quite the opposite, it is vital,
foreigner or outsider builds guanxi in China, but you should use it as a springboard to
the more the Chinese will accept them as build 'corporate' guanxi with your counterpart
being one of them or an insider. organisation(s), who will behave similarly.
Indeed, some Chinese may not distinguish
Example 1 between the two, and use personal guanxi to
My services in China were recognised by secure not only personal gain but also
being appointed a Guest Professor at corporate advantage.
Shanghai’s Finance University, then under Thus, do not be surprised if an individual
the aegis of the People’s Bank of China. Chinese suggests that your and their
organisations clinch a totally unrelated deal
Underpinning values and rules of guanxi purely on the basis of your relationship. After
all, the prime value to China of building
Guanxi is governed by the:
guanxi with you, as a foreign devil, is to
x Confucian 'values' of altruism, harmony, acquire whatever technology, expertise etc.
integrity and reciprocity. that your organisation can contribute to her
x Rules of mutual trust and loyalty; progress.
durability and long-term commitment; To be successful, therefore, guanxi must be
face; and respect for hierarchy. as much business-to-business as person-to-
The penalty for breaking these is a loss of person; and foreigners who forget this, and
trust and face, leading to ostracism from the boast of and rely solely on their personal
network - which in itself is the incentive and guanxi, do so at their peril.
self-regulating control mechanism for not
breaking them.
Practice of guanxi
In business, guanxi is the personal
Forms of guanxi networking that gains you access to elusive
There are two forms of guanxi: contracts, finance, goods, information,
x Passive-acquired through natural means markets, people and services by means of
with 'insiders' (e.g. family, school, exchanging favours rather than money. In
university, marriage, work, clubs, other words, it is not bribery (for which the
neighbourhood associations etc.). punishment may be swift, severe and even
x Active-acquired by exchanging gifts and capital).
favours with 'outsiders'. As elsewhere, success in business depends
Foreigners, as outsiders, should observe the as much if not more on whom you know,
latter form. rather than what, a reality sometimes
overlooked to their cost by those results-
Levels of guanxi oriented foreigners who mistakenly
There are also two levels of guanxi: concentrate on finalising contract details
x Personal rather than spending time building personal
and corporate relationships, as the Chinese
x Corporate.
do, when negotiating business deals.
Now, whilst guanxi naturally originates from
It is important, therefore, for foreign
the former, for on-going business purposes it
business(wo)men to understand the

6 The Research Centre, City College Norwich


difference between problem-solving in: Forbidden City in Beijing. Tickets for half-
x The West where we tend to ask decent seats were quickly scarce despite
ourselves: “what can we do to solve being expensive for personal (as opposed to
this?” corporate) pockets. Consequently, I wrote to
x China where they will ask themselves: the Director General (DG), in Spanish, fondly
“whom do we know who can help us to recalling our several meetings, especially his
solve this?” offer of writing poetry in Chinese for my wife,
Thus, in China: 'business may flow out of explaining my situation, and enquiring
friendship, whereas, in the West, friendship whether he could possibly help me obtain
may flow out of business' (Ambler and Witzel, tickets at an affordable price. Unfortunately,
2000, p.198). Indeed, the most common and no tickets were forthcoming. In hindsight:
straightforward method of using guanxi is via perhaps I had asked an unfeasible request?
a friend of a friend (e.g. if you wish to meet Nevertheless, every cloud has a silver lining:
Mr. X, and his right-hand Chinese employee Quite unexpectedly, when (on the evening
has guanxi (direct or indirect) with yours, ask before the last night) I recounted this tale to a
the latter for an introduction via that guanxi. group of friends, one of them (a Chinese)
If successful, your right-hand employee may said: “I know so-and-so who helped build the
gain face, especially if they were not senior stage. He can get you cheap tickets and a
enough to have connected with Mr. X without pass to the VIP enclosure for tomorrow’s final
you). This approach is akin to Newton's performance”, and that is how my wife and I
Cradle, using contiguous connections to came to be sitting in the front-but-one row at
move up the chain of influence (see Case a knockdown price and spending the intervals
Study 1 below), however, as I discovered, in the VIP enclosure! But the story does not
guanxi is not always a function of seniority end there; two years later, we moved house
(see Example 2 below). and sent Christmas and New Year (Western
One word of warning: never forget who it was and Chinese) cards with our change of
who acquired a connection for you, or rather address to hundreds of business contacts,
lent that connection to you. To take over including scores of Chinese, but received
another's connection without further involving very few replies (which is par for the course),
the introducer could cause resentment and and only one or two from China, including a
close more doors than it opens. Thus, if you message of friendship from the DG of the
continue to meet a friend of a friend, keep the CPAA.
first friend informed and appear eternally
grateful: otherwise the latter could turn that Example 3
friend against you (see Example 3 below). I was introduced to the Hong Kong General
Guanxi may be hard to build, but even more Manager [GM] of a potential Joint Venture
difficult to recover. partner by one of my senior Chinese
colleagues who had been a University friend.
Example 2 Each time I visited Hong Kong and met the
In early 1998, my employer and the British GM, I always let my colleague know, even
Council co-sponsored a tour of China by the when the relationship developed to the point
Royal National Theatre. As a result, my wife where the GM invited my wife and son to
and I developed a good relationship with the lunch.
then Director General [DG] of the Chinese
Performing Arts Agency [CPAA] on both a Case Study
business and personal level, including After returning to the UK, when I was asked
through the various banquets I organised by a long-term friend and colleague in
where all three of us were able to indulge our London for a contact name in a particular
passion for Spanish. Several months later, department in a specific Chinese company in
shortly before I was due to take early China, I contacted:
retirement and leave China, the opera x My Chinese ex-Personal Assistant [PA]
'Turandot' was staged in the open air at the in China who offered to ask …


Volume 3 Number 2 June 2005

x Her Chinese colleague to ask … Else, you may have to choose between the
x Her husband who had been PA to the devil of refusing, with the attendant dangers
Chairman of that company to ask in a country where saying 'no' causes a loss
one of … of face and the deep blue sea of having to
x His ex-colleagues for a contact name in cough up; pre-warned is pre-armed.
that department …
Building guanxi
x Which was then fed back along the chain
to me. As intimated above, guanxi is hard for
foreigners to build, not least on account of
To make the point: although I already knew
the:
my ex-PA’s colleague’s husband, I did not
make direct contact for two reasons: x Time needed to establish trust between
parties who, as a consequence of their
x I might have offended my ex-PA.
geographical and possibly linguistic,
x It is better to use strong rather than separation, may meet and/or have direct
tenuous links. contact only infrequently.
Surprisingly, this is a fairly straightforward
x Chinese attitudes to foreigners.
example, unlike the one quoted by Bond
Meanwhile, in order to prime the guanxi
(1991, p.59):
pump, I offer the following suggestions which
If an individual (X) needs a resource can only temporarily kick-start rather than
from a stranger (Y), he may be able to permanently buy into guanxi, since, by its
obtain it by pulling on his relationship reciprocal nature, guanxi cannot be bought:
with an associate (Z), who is also x Use the services of a 'local intermediary'
associated with Y, so long as Z is who is respected by your country(wo)men
indebted to X and Y is indebted to Z. Z and the Chinese alike and has
may then be able to repay the debt established guanxi within the business
which he owes to X by allowing Y to circles you wish to enter.
repay the debt owed to Z indirectly by x Select senior local employees on the
granting Z’s request. basis of their guanxi as well as ability.

Hazards of guanxi Protecting guanxi: collectivism and
To maintain it, therefore, be sure to keep consensus
stoking your guanxi, keeping favours in As a result of the importance that they place
balance. It is not an inexhaustible supply, as on good relationships (guanxi), coupled with
some foreigners have mistakenly believed to their extended Confucian concept of 'Filial
their cost, but like a bank account, needs Piety', current political heritage in general,
deposits to cover payments. Otherwise, one and previous 'Maoist Collectivism' in
of two things may happen, your Chinese particular, and 'lack of privacy' or personal
connections may: space, is it any wonder that the Chinese are
x At best withdraw their goodwill. primarily social beings (i.e. members of a
x At worst pre-empt you by requesting a group, to which they owe allegiance, rather
favour that you cannot grant (e.g. ranging than individuals?).
from putting in a good word at your Moreover, combined with the emphasis that
Embassy in China to hasten their visa they place on 'harmony' to save 'face',
application or at your local University to keeping a 'low profile' to preserve 'modesty'
secure a place (neither of which should and 'obedience' to 'hierarchies', it is not
cost you money); to paying for their travel surprising that the Chinese put:
or study costs). x Group harmony and dynamics before
Be careful, therefore, not to exaggerate the individual behaviour, ambition and
scope of your guanxi in your home country assertiveness, which they see as a
and/or give the impression that such guanxi threat.
will necessarily yield their desired result. x The preservation of 'insiders' guanxi

8 The Research Centre, City College Norwich


before the conflicting interests of 2000, p.198).
outsiders, which they do not necessarily x Guanxi may be hard to build, but even
consider dishonourable or corrupt more difficult to recover.
behaviour (see Example 4 below). x Never exaggerate the scope of your
Finally, add to the above recipe the further guanxi in your home country and/or give
ingredient of their uninventive education the impression that such guanxi will
system and it will come as no surprise that necessarily yield their desired result.
the Chinese prefer 'collective decision x Agreeing to disagree is not an option in
making' and 'consensus' as a means of China.
taking advantage of collective wisdom and
building group confidence. Thus, in business,
References
the Chinese will debate issues until
Ambler, T. and Witzel, M. (2000). Doing Business
agreement is reached on a course of action, in China. London: Routledge.
and expect individual group members to Bond, M.H. (1991). Beyond the Chinese Face:
accept and implement the group decision Insights from Psychology. Oxford University
regardless of their personal views. Agreeing Press.
to disagree is just not an option in China. Concise Chinese-English Dictionary (1986).
All of which begs the following chicken and Concise Chinese-English Dictionary. Oxford
egg type questions: University Press.
x Is collectivism the result of or impulse for New Chinese-English Dictionary (1996). New
guanxi? Chinese-English Dictionary. China.
Seligman, S.D. (1997). Dealing with the Chinese.
x Is Guanxi the result of or impulse for
UK: Management Books 2000.
collectivism?
Seligman, S.D. (1999). Chinese Business
Etiquette. USA: Warner Books.
Example 4 Wenzhong, H. and Grove, C.L. (1991).
In 1997, one of my Chinese female members Encountering the Chinese. USA: Intercultural
of staff resigned only days after joining the Press.
company, when her husband’s best friend Williamson, A.M. (2003). The Chinese Business
offered her a job. Loyalty to family (her Puzzle. Oxford: How to Books.
husband) and friends (albeit her husband’s) Wei-ping Wu, and Li-Yong (2000). 'Chinese
came before duty to employer. As she Cultural Values and their Implications in Business
explained to me: for her to turn down the offer Transactions'. In, Doing Business with China. UK:
Kogan Page.
would have been for her husband a loss of
face.
Further information: www.minim.biz
Conclusion Copyright: No part of this article may be
From personal experience, the main advice reproduced without the express permission of
that I normally give to Westerners may be the author in writing. © Copyright 2003
summarised as follows: Andrew M. Williamson.
x The more a foreigner or outsider builds
guanxi in China, the more the Chinese
will accept them as being one of them or
an insider.
x Guanxi must be as much business-to-
business as person-to-person.
x Foreigners who boast of and rely solely
on their personal guanxi, do so at their
peril.
x 'Business may flow out of friendship
whereas, in the West, friendship may
flow out of business' (Ambler and Witzel,


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Guanxi - The key to doing business with the Chinese