BUSINESS IN CHINA. GUANXI.
I want to start this writing by introducing the idea behind Confucius, so you can understand the base of the social thinking. Is a really important point to have clear that the way people think in the Eastern world – as it happens in our western societies- are influenced by their concepts, believes and historical background. There is not a glimpse of judgment on this writing, so while reading this please be open. Thank you.
For 2,000 years Confucianism was the official philosophy of China. The only way a person could achieve an important position in the government or in society was by having a good knowledge of Confucianism. To become a government official it was necessary to pass a difficult civil service examination based on the ideas of Confucius. Since it was Confucianism that kept the leaders in power, they were opposed to any changes. The Confucianists believed that they were the only civilized community in the world and they looked down on the beliefs and cultures of other people. This attitude made the Chinese unwilling to change their way of life when they were first exposed to Western culture. This unwillingness to adopt Western ideas and techniques in the late 19th and early 20th centuries proved to be disastrous for the Chinese.
Filial piety is the most basic and natural manifestation of innate human benevolence. In the worldview of Confucian thinkers, life revolved around “five constant relationships” (五倫): emperor-subject, father-son, husband-wife, elder-younger, friendships. The family was regarded as the nucleus of society, from which virtue, social and political order emanated (see: Joseph Chan: Territorial Boundaries and Confucianism. In: Confucian Political Ethics, ed. Daniel A. Bell, 2008, p. 64). Given the importance of society in Chinese thinking, it is only too natural that social values exert a deep influence on the individual.
For 2,000 years Confucianism was the official philosophy of China.
Confucianism was important in Chinese history because it taught justice, sincerity, and that family unit is important. It also taught that the government should be based on morals. Confucius believed that the human brain was not capable of understanding religion, changing people’s religious views. Although people were skeptical about it, at first, it became heavily popular in China before Buddhism.
The preeminence of social standards in China derives from Confucian ethical traditions, which emphasized the subordination of the individual to the family system and other networks of relationships. According to Confucius and his disciples, benevolence (仁, ren) is humanity’s highest moral value. Benevolence is chiefly expressed in human relationships, the most basic and important are family relationships.
When a foreign company goes into China, the first thing you need to do is start to network, meet people, and build good guanxi. And then, when the personal relationship is strong enough, you can trust what other parties say and start to use contracts.
Benevolence is chiefly expressed in human relationships, the most basic and important are family relationships.
Guanxi is a cultural concept in China, which roots come from the moral and social Confucious thoughts. The whole meaning is about looking after each other and it’s quite strong in-group thinking. In this sense the personal bond comes first, then the business relationship comes in. This starts with people making friends, even though there may be no instrumental benefits in it.
Sometimes, when these local relations are not developed enough, many people and companies use what we call “gatekeeping”, somebody from the international business community, like a US company that’s already in China and belongs to a foreign organizational network. Then there’s Chinese local business networks: Chinese companies, Chinese clients and, quite often, Chinese government agencies. The two networks have different values. So this particular connection breaks the boundaries between two groups of business networks and allows them to come together in a simple way.
In that case, we need a gatekeeper, a member of both networks. A lot of Chinese students who have studied in Western countries become gatekeepers. Quite often they are employed by foreign organizations because they know Chinese business culture well and they already belong to Chinese networks.
Many people and companies use what we call “gatekeeping”.
Guanxi (關係) is about building a relationship at the personal level first; then talking about business. That’s why the gatekeeper starts to interact with the Chinese client at the personal level, building a certain level of personal trust. Official business meetings will then be easier to facilitate and the contract can be easily negotiated. If there’s a problem with the contract, it will be radically easier to reconcile.
In order to build up your own local network you need to go out and attend events, go to functions and moreover you have to do favors: be generous and give presents, food gifts during festivals, invite out for dinner. And of course, keep good relations with the Chinese government. Guanxi is everywhere, it is how the business is done. Maybe of decreasing importance for the new generations but still very important and it takes time to develop it. There can be a thin line between Guanxi and bribery. The current government of Xi Jinping is actually trying to fight corruption, so trying to understand whether Guanxi is and to what extent could affect the business practices of a large company is really important.
While this concept is an important part of doing business in China it is not the be-all and end-all of it. Having strong relationships alone will not ensure that you will be able to achieve your business goals in China. Your company will still need to have a strong overall business operation in order to be successful. You should also treat with skepticism those who claim that guanxi alone can enable your company to succeed in China. While these connections can help you open doors and find new opportunities, your company will still need all of the other components of your business to be strong if you want to grow.
Having strong relationships alone will not ensure that you will be able to achieve your business goals in China.
Last, this is important to understand that for millennia, China has lacked a strong rule of law. Because the law has not often been able to provide the legal protections which it does in the west, Chinese people needed to develop another means of ensuring trust amongst themselves in personal and business matters. Maintaining face, or reputation, among people within one’s own network, is also an important characteristic of Chinese culture. Because of the importance of maintaining face, Chinese people will usually not take advantage of a person with whom they have guanxi. This is true because if they develop guanxi with them and they were to take advantage of them, all of the people in their network would know what they had done and they would lose face with this network. By losing face they would also lose the respect of others in the group and potentially lose their connection with their network. Therefore guanxi has become a means of building trust that law cannot always provide for Chinese people in personal and business matters.