Guanxi is perhaps one of modern day China's most mystified notions to many Westerners
This is a re-post of an old article written in 2007 to provide references to some background info on China’s recent past.
By Shawn He Yuxun
Oct. 23, 2007
You might have heard the Chinese word “Guanxi” (pronounced guan-shee, literally meaning “relationship” or “connection”) frequently touted by many a China consultants or “old China hands” who have been there and done that.
But don’t we all on this planet talk about and need “relationships” and “connections” in business? Then how is this Guanxi different from the usual “relationships” and “connections” that we know. And just how much of it is a “guarantee” for success in China, and how much of it is merely a China consulting “chic”?
Prior to the 1980s, every aspect of China’s economic life was planned, controlled, directed and operated by the government. No private ownership of any property or asset, much less profiteering for an individual or group, was allowed. The government would allocate everyone a pre-defined slice of the “big pie” (incidentally the equivalent terminology in China — where rice rules the dining table — was “Da Guo Fan” (da-gore-fun), which means “rice in a big (communal) wok”). If one wanted any more than what was allocated to him/her, he/she would have to circumvent the system and rely on another individual in charge of a particular function in that “allocation chain” to do him/her a special favor.
During those days of hyper Communist ideology control, people were obliged to sacrifice their individual interest for that of the whole society. Any act of favoritism was a serious offense not only regulatorily/legally, but also ideologically. The only people that anyone would risk their reputation, career or livelihood (and in some extreme cases even lives) to do special favors to would be those with extremely strong or solid ties or relationships (i.e., guanxi). In fact, the Chinese themselves would say the guanxi between so and so is very “Ying” (ying) — which means “hard” or “solid”, or very “Tie” (tyeh) — which literally means “iron“ or “iron-like“.
On the other hand, since all resources and assets (both tangible and intangible) belonged to the government and not any individual or group, there was never a nominal economic cost/value (i.e., price) on the transactions associated with those acts of favor, nor could they be monetarily bought or sold. Effectively a “barter“ system was created in which anyone could leverage whatever resource or asset within their power or control to “barter” for a return favor from another individual in the future. And this “barter” system only functioned within those transaction parties’ “iron guanxi” network, or Guanxi (note that I use the bold font to emphasize that this is not your average relationship — i.e., guanxi in its normal, literal sense — that we are talking about), so as to minimize “credit” risks (i.e., betrayal, rip-off, and/or exposure.)
Back then, when people sought such Guanxi in a hurry, they would say I need to “pull some relationships“, or in Chinese, “La Guanxi”, pronounced la-guan-shee. (Funny how Americans would say I need to “pull strings” in a very similar fashion). Because you could never practically “develop” such a relationship or guanxi in a short time — This was an exceptional type of relationship that only existed among close relatives, friends and associates, or generally speaking, a closely-knit group of people who are mutually dependent.
For obvious reasons, at the time “La Guanxi” was always coupled, and almost synonymous, with “Zou Houmen“ (zoe-hoe-mun) which literally means “entering through the backdoor“.
In the Western world, having the right relationships or connections, while very important, is usuallly not a sufficient, nor in some situations necessary, condition for someone to accomplish a business objective. You’d need to have sound business fundamentals first. Good relationships and connections only serve to facilitate a transaction that makes good business sense in the first place.
It is perhaps fair to say that in the business environment that we are familiar with, relationships and connections (i.e., normal guanxi) only play a secondary role, except in some extraordinary cases. (And it is in these exceptions that you’d most likely find Guanxi, in the Chinese sense, at play.)
When China first embarked on its economic reform and opening policies in the late 70′s, since there was no pre-existing market-driven system to guide the economic flow and since most of the transactional entities were state-owned, things were carried out predominantly over this Guanxi-based system since that was the only proven means for one economic entity, be it an individiual or a company, to reach out to another that had not been its normal point of contact under the old, “by-government-mandate-only” system.
So by and large throughout the 80′s and most of the 90′s, having Guanxi this “ultra-relationship” or “super-connection“ ALONE had proven to be a sufficient, and in many cases also necessary, condition to get something done, regardless of the fundamentals. With Guanxi, a completely unqualified and incompetent person could land a very important job and/or position. Also with Guanxi, a company with no track record whatsoever could be awarded massive contracts. You get the point…
As the economy becomes more and more marketized / privatized and competitive, the value and effectiveness of the Guanxi system has also greatly deterioriated. In industries that have been substantially deregulated / privatized or where there is much competition, business is business, and Guanxi has been neutralized / marginalized to resemble just what relationships and connections are like in the Western world.
When commenting on the subject during an AeA event co-sponsored by MeetChinaBiz in July, 2007, Greg Shea, president of Beijing-based U.S. Information Technology Office (USITO), a US advocacy group for the ICT industry (a fairly deregulated and fiercely competitive one participated by all players around the world), said: “Don’t let those consultants scare you into thinking you’d still need Guanxi to play in that market nowadays. It is bollocks, bollocks, bollocks, as the British would say…”
If Guanxi in its true, original sense (where a phone call or a note from a VIP would land a person or a company an otherwise impossible permission or deal) still exists today, it would only exist in highly controlled or non-transparent sectors, at very high levels and behind closed doors — i.e., not easily accessible to the average business people and consultants that crowd the busy China scene of today.
