‘Guanxi’ in China: How to Build Contacts and Get Things Done

If you've thought about entering the Chinese market you've probably heard about the importance of connections, contacts and how they enable relationships in business and in daily life.

The word for building connections and relationships in Chinese is ‘guanxi’, but it also implies the ability to get things done. The closest Western equivalent is social capital, however, guanxi is more than just good will and general support from your social network. It is a dense web of quid pro quo which is carefully curated and enforced through social pressure.

Foreigners living in China do form relationships, but these don’t often reach the depth and complexity of mutual obligation that is meant by the ‘guanxi’ that builds up over time. In contrast to most western relationships, these obligations are relatively transferable, and a ‘friend of a friend’ or even a ‘friend of a friend of a friend’s friend’ may open doors for you. However, there is also an expectation that you will return the favor with no expiration date.

Take an example from personal lives – the standard gift at a Chinese wedding is a red envelope with a considerable amount of money. Most weddings are large and the invitees will be drawn from the furthest reaches of the social networks of both families, resulting in quite a sum of money for the young couple. However, the amount of money received by each guest is carefully tracked and upon the marriage of the giver, or if already married the giver’s child, will be returned – perhaps with a little extra – and even if it takes 25 years.

When you are outside of the guanxi network you miss out on both the benefits and the obligations. Last year I was married to my American husband in Chongqing. We received many lovely gifts from our Chinese friends, but no red envelopes. Why? Because we were not properly inside the web of guanxi and were not expected to be around to continue the chain.

Guanxi at Work

Guanxi forms a major part of people’s professional lives. In the worst cases, reliance on guanxi networks can lead to corruption and unfair advantage. However there is a strong positive angle – guanxi binds people together, reduces risk and discourages cheating while encouraging win-win outcomes.

For example, when faced with disputes, rather than relying on legal solutions people prefer to do business with people that they either know or who have social incentives to keep promises and honor contracts by virtue of their shared guanxi networks. Chinese society, in general, does not strongly emphasize adherence to laws and regulations, making the importance of individual contacts that much more important when there is any doubt about how to judge a situation.

On the surface this may appear as a more closed approach to business, with barriers to entry being erected against ‘out-groups’ by ‘in-groups’ but it is actually quite a rational approach, just one with different incentives. Despite the fact that you will begin on the outside of these networks there are two things you can do to help your business thrive in China – choose good partners and be a good partner to them.

What does this mean for my business?

Entering China with strong partners who have a reputation for long term commitment can greatly impact your chance of success by giving you access to their extended networks and lending you their credibility. However, be wary of anyone who offers to sell you access to their networks, as these networks are usually of low value or involved in legally suspicious activities. Because of the long time horizon and unspecified nature of the payback, Chinese people are selective about using guanxi and incurring obligations so you won’t find real relationships for sale to the highest bidder.

Instead, try to find partners who have positive experience bridging the gap between China and the West and already know the value of having foreign partners. They can help you to understand the expectations that come with any favors, and they are more likely to trust you and evaluate their risk correctly due to their familiarity with Western business norms. Further, they will understand your constraints and will be less likely to land you in tricky situations or expose you to unnecessary risks. The value of an experienced partner cannot be overstated when it comes to avoiding inadvertently stepping on toes and driving mutually beneficial deals.

The flip side of the coin is that you have to be worthy of the credibility and relationships that you are borrowing from your local partners. If you were to grossly violate social expectations or, more likely, leave a trail of unmet obligations these would remain with your partners and have the potential to do real harm to them. You will not always be aware of the pressure that a certain move will bring down on you and your partner so think carefully or ask for clarification if they advise you against a decision that may be common sense back home.

Chinese people have famously long memories and your interactions, good or bad will influence your guanxi. Watch out for both friends and obstacles in unexpected places as your reputation spreads. 

 

Author: Sarah Hager

Sarah is an analyst and corporate trainer with professional experience spanning three countries. She has worked with a number of international, local, and joint-venture companies in China and is expert at creating buy-in from stakeholders across cultural boundaries. Her passion lies in building real relationships and helping people to understand the world from diverse perspectives. 

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Mark Pinner

Managing Partner, China

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