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What is Guanxi?

An omnipresent phenomenon

Guanxi (关系) refers to a social and business networking practice in Chinese culture involving long-term personal connections and the mutually beneficial exchange of favors. Guanxi is neither strictly business, nor personal; guanxi relies on a blend of affective ties (personal caring) and instrumental ties (ability to provide solutions). In business, guanxi arises from 1) shared identity or mutual acquaintance, 2) genuine connection and frequent proximity, and 3) contacts, i.e. business facilitating/matchmaking.

Guanxi is an omnipresent phenomenon in China. It is crucial in personal relationships, business to business relations, and business to government relations.  In order to move beyond superficial friendship with a Chinese person, you must be aware of the practice of guanxi.  Likewise, for businesses: even as a foreigner, you must become aware of guanxi.

This post defines guanxi from a Western perspective and specifically refers to social and business guanxi. (It does not refer to familial guanxi.)  In this post, I provide examples of how guanxi functions and suggest some best practices for Western individuals and business interested in utilising guanxi.

What is Guanxi?

Guanxi (gwan-shee) is often translated as a system of reciprocal relationships or “Chinese networking.”  In fact, there is no exact counterpart in Western culture. Guanxi is a buildup of “social capital” that opens doors, allows individuals to cut lines, and cuts red tape. Networks of individuals and organizations frequently and voluntarily trade favors, gifts, and benefits in a long-term process that reinforces trust and loyalty. Examples of social and business benefits include personal gifts and meals, lucrative information, special pricing, and access to powerful contacts.

Since guanxi is a slippery concept for Westerners, it helps to define guanxi functionally as a kind of strategic friendship.  This strategic friendship helps individuals and organizations overcome the constraints of scarcity, competition, and logistics/mobility within society and its infrastructure (such as laws, regulations, and due processes).  In Chinese culture, guanxi arose as a practical response to historical factors: a weak/inaccessible legal system, a foundation of Confucian morals, and social and economic needs due to lack of government support.

Real Examples of Guanxi

In China, it is common for friends buy each other gifts without occasion.  At restaurants, friends take turn allowing each other pay the bill.  When a friend requires a difficult favor, this is not considered a nuisance; rather, it is considered an opportunity to enhance the friendship.  For this reason, only strangers say sorry or thank you; to say sorry or thank you to a friend is to diminish guanxi. This is the opposite of the Western custom by which “sorry” implies vulnerability and intimacy, and “thank you” signals respect.

In business, guanxi means that others will extend themselves in order to further your personal or business interests, trusting that you will voluntarily return the favor. This could mean helping you save face after you’ve committed an embarassing mistake, unexpectedly covering a bill, reaching out to a third party to help you win a contract, or surprising you with a gift related to your expensive hobby.

Guanxi is always…

  • Long-term and non-transactional. Exchanges cannot take place immediately in response to a favor.
  • Based on trust and loyalty.  Since both the future benefit and delivery date or a reciprocal favor are unspecified, allowing the other party to come through signals patience, selflessness, and steady character.
  • A signal of commitment. The most meaningful favors occur in difficult times.
  • Reciprocal.  Nothing violates the practice of guanxi more than failing to seek the right opportunities to reciprocate.
  • Connected to the concept of face, mianzi (面子).  Mianzi is the image of positive social value earned through achievements and fulfilling social expectations. To maintain mianzi, a person must avoid neglecting obligations, committing inappropriate actions, offending others, and showing disrespect.  A loss of mianzi makes guanxi impossible, for social status provides the mechanism for controlling social dynamics.

Why is Guanxi Important?

In Western business culture, as in China, networking is essential for business performance. But in China, networking is not a simple matter of attending conferences with cards in hand and writing follow-up emails.  The Chinese practice of networking known as guanxi requires considerable investments of time, effort and money, far beyond the cost of a round of golf or a bottle of wine at Christmas.

Despite the high cost of guanxi, it remains the norm in China because it is associated with long-term cost reduction and enhanced efficiency, thereby resulting in increased profits.  Guanxi is said to be a decisive factor for business success because it is critical for reaching consensus and ensuring both parties’ voluntary performance of agreed upon terms.  Indeed, if an individual is talented at growing positive guanxi, he can greatly advance his competitive position.

Terms to Know

Guanxi (关系): a valuable social system of networks and relationships

Renqing (人情): the ritual actions such as giving gifts and meals in order to build up guanxi

Mianzi (面子): literally means “face” but refers to social standing

He (和): translates as harmony and implies peace, correct timing of action, flow, and balance

Relationships, Harmony, Face

FAQ’s about Guanxi

Is guanxi a marketing technique?

  • No. Superficial attempts at guanxi will be obvious to Chinese acquaintances.

Is guanxi ethical or is it a corrupt system?

  • In China, guanxi is an ethical practice and differs from bribes and corruption.  Any business operating in China will find itself in need of growing guanxi because lack of guanxi limits growth opportunities. The fact is that outsiders will be treated unfairly.  If you must regard guanxi as an unavoidable evil, adjust your own activities to avoid corruption and harming others.

What is the relation between nepotism and guanxi?

  • Guanxi effectively makes relationships a valid criterion by which people are evaluated for various roles. In other words, your close friend’s nephew (over whom you have social control through a third party) might therefore be the best fit for an important management position in your company. If this implies that there’s a grey area, it’s because there is.  Moreover, nepotism is a Western concept. In a private company in China, the promotion of relations is neither illegal in Chinese law, nor immoral in Chinese custom.

Does guanxi favor exchange have to be equal value (as it generally does in the West)?

  • No.  Sometimes a weaker person benefits more. The important thing is that the favors returned should offer consistent (or increasing) quality over time.

5 Best Practices for Guanxi

Since the mid-1980’s, guanxi has become a popular topic among Westerners who aim for business development in China. A quick Google search will readily provide you with basic tips for gift-giving, such as not to give items in sets of four, not to give knives, clocks, or pears, and to make sure you wrap gifts and insist that the recipient takes it even if it is first refused. But guanxi should not be confused with a simple practice of gift-giving. Guanxi has deeper meaning, and here are five best practices to keep in mind.

  1. At the first meeting, don’t rush into business talk. If you are invited to dinner or drinks hosted by potential partners or friends, engage with them on a personal level and discover their hobbies and character.
  2. Make yourself useful by identifying and attending to the other person’s happiness. Guanxi is personal and should not be confused with offering money or miscellaneous expensive items.
  3. Don’t flout obligations. Favors must be repaid when the opportunity arises lest the relationship be damaged.
  4. No absolute rule exists for distinguishing bribes from favors, except that bribes usually come in the form of large sums of money.
  5. Some foreign businesses have experienced guanxi scams, i.e. being exploited.  To avoid scams, research into your acquaintance’s present suppliers and clients, competitors (who may have been former partners), and history of legal actions against them. Judge character by looking at behavior, not words.  Allow trust to build over time – if there’s no reason to trust yet, don’t.

If you can manage to participate correctly, Guanxi is an excellent method for increasing competitive advantage.  Use the information in this post wisely as a resource for you to begin building guanxi. 

For more information and tips for building relationships & contracts, visit my post: Crash Course: Chinese Contract-less Contracts

References

For a positive opinion of guanxi:

Jin Guan, “Guanxi: The Key to Achieving Success in China”. Sino-Platonic Papers, 2011, pp. 217. Accessed Feb. 4 2020: http://sino-platonic.org/complete/spp217_guanxi.pdf

For a critique of guanxi:

Fan, Ying. “Guanxi’s Consequences: Personal Gains at Social Cost.” Journal of Business Ethics, vol. 38, no. 4, 2002, pp. 371–380. Accessed 5 Feb. 2020: www.jstor.org/stable/25074806

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