Given the size of China’s population and the diversity of its’ country, it is not surprising that business practices are formed through personal connections. The concept of “guanxi” is the sphere of influence arising from the relationship individuals form with other individuals in Chinese society.
Personal relationships and connection-building is not unique to China, as networking is part of doing business universally. However, in China “guanxi” also assumes a level of reciprocal favour. One observer defines “guanxi” as: “…the benefits that can be derived from social relationships”. At it’s core, is the act of reciprocity, one must find a way to return the favour, or fulfil a request to do so. To not fulfil a reciprocal obligation, means a loss of face and reputation. Cultivating “guanxi” – personal relationship building and reciprocal connections was historically, a social system of interdependence and survival in China. The concept of “guanxi” originated in Confucianism, a system that emphasized mutual obligation and trust. It taught that the individual is part of a strict social and economic hierarchy, which took precedence over the needs of the individual. An individual in this social system has “guanxi” obligations to fulfil to their family and their social and business networks. Apart from one’s familial obligations, one’s interpersonal relationships in this context emphasize trust, loyalty, reciprocity and dedication. All aspects which reflect the key notion of filial piety within Confucianism.
In business relationships in China and throughout the Chinese Diaspora, “guanxi” plays a core role. Business and government may initiate business first through personal guanxi networks, before taking the business projects to a more formal framework. Research compiled by VECCI Export Services (Victorian Employers Chamber of Commerce) found that a lack of personal networks was one of the major challenges in exporting to China. No knowledge of the Chinese language and culture were also barriers, as miscommunication can quickly spiral out of control.
Given that China has moved into a much more structured legal framework over the last decade, is “guanxi” outside of corporate governance, or does it continue regardless? The accounting firm PWC’s guidebook “Doing business and investing in China” warns of the risks to reputation and lack of compliance in China for Australian companies. PWC states that China is unique in its risks, and the pitfalls of non-compliance with China’s anti-corruption laws can be severe. Thus practising “guanxi” can be a double-edged sword for businesses. “Legitimate guanxi-building may lead to corruption, such as the awarding of a contract to someone in the guanxi network”.
Thus, the term guanxi is often referred to in the context of nepotism within Chinese culture as the lines between business and personal relationships blur.
And yet, “guanxi” remains an important socialchannel for maintaining business relationshipsin China.