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Guanxi

"Guanxi" [pronunciation = gwan'si or gwan'shi] is the Chinese word for personal bonds or connections. Researchers tend to agree that it is essential to establish "guanxi" with Chinese businesses. Those with Guanxi — a deep understanding of the culture and business environment — will be at a great advantage.

With guanxi, the impossible becomes possible. Guanxi literally means “relationship” or “connection” but in reality it’s a complex interdependency of mutual obligations, social capital and face-saving. “Guanxi” (a good personal network) is known to be one of the secrets of success in life in China. Personal relationships, or guanxi, have historically served as an important organizing principle for Chinese economic and political life; trusted friends and family often provide the only reliable partners in uncertain and unpredictable environments.

Guanxi is a central idea in Chinese society. At its most basic, guanxi describes a personal connection between two people in which one is able to prevail upon another to perform a favor or service, or be prevailed upon. Guanxi can also be used to describe a network of contacts, which an individual can call upon when something needs to be done, and through which he or she can exert influence on behalf of another. In addition, guanxi can describe a state of general understanding between two people: "he/she is aware of my wants/needs and will take them into account when deciding her/his course of future actions which concern or could concern me without any specific discussion or request". Embracing guanxi can improve team learning.

Guanxi, or “relationships,” continues to be the primary means for mainland Chinese to cultivate social, work, and personal ties. Some define this concept as an an informal, particularistic personal connection between two individuals who are bounded by an implicit psychological contract to follow the social norms of guanxi such as maintaining a long term relationship, mutual commitment, loyalty, and obligation. Most researchers agree on the key attributes of guanxi: these networks are personal, particularistic, and usually based on a common link, such as birthplace or ancestral home (laojia), school, or workplace. Guanxi ties shape an individual’s social network, effectively limiting ties with strangers by defining some as outside of one’s network of obligation and reciprocity.

The common practice of guanxi is a custom for building connections and relationships based on gifts, banqueting, or small favors. Guanxi-related gifts can be considered bribery by foreign companies and by national and international anti-corruption laws.

Capitalism with Chinese characteristics premised on the critical role and functions of guanxi in the business culture of China. These practices included treating business relations as social relations, drinking and eating as business etiquette, exchanging gifts and donations for favors, especially access to privileged information (as knowledge is power), kickbacks, collusion with government officials, recruitment of family members and kinsmen into key positions in the company - and so on.

Reliance on social networks and trust appears to be a characteristic of shortage economies with weak legal infrastructures, like Russia and China, where powerful officials control access to resources. In such an environment the accumulation of guanxi is necessary to achieve most goals, from acquiring housing to starting a business. Guanxi continuously plays an influential role in facilitating occupational attainment when China’s labor markets face a great deal of institutional uncertainty.

Guanxi is a mechanism to explain status transmission from the older generation to the younger under state socialism, as a key factor in the development of private businesses in the cities during market reforms, and as an effective strategy for individuals to get ahead in a more open, market-like rural society.

Personal relationships (guanxi in Chinese) in business are critical. Guanxi is deeply rooted in Chinese culture and a necessary tool for getting things done. In any business transaction, counterparts will want to know with whom they are dealing before getting involved too deeply. It can sometimes take many months to develop these types of relationships. American businesses need to understand this aspect of the business culture and a take a patient approach. Thus, it is important for exporters, importers, and investors to establish and maintain close relationships with their Chinese counterparts and relevant government agencies.

It is equally important that American exporters encourage strong personal relationships between their Chinese agents or distributors and the buyers and end-users. A web of strong personal relationships can often help ensure expedited governmental procedures and smoother business development in China. This is a cultural difference that American companies should be aware of; personal relationships can be just as important if not more than legal contracts.

The number of arranged marriages, in which parents have absolute control, has decreased But in most marriages, parents continue to have an influence on the decisions made. Parental involvement in all aspects of young people's lives is welcomed by both parents and children. Guanxi provides an explanation for continuing strong kinties. In China people rely heavily on the use of interpersonal ties (guanxi) to acquire scarce goods and services. Children often rely on parents' guanxi for help in achieving school or career goals. Marriage decisions are thus made in a context that supports continuing influence of parents in the lives of adult children.

The other side of such a business culture, its downside, even dark side is the dysfunctions of a guanxi-based culture and society. The list of dysfunctions is well-known by now: corruption, bribery, collusion between businessmen and government officials, nepotism, cronyism, and the list continues. As it happens, on the macro-structural level, the social exclusion of those without guanxi in the business game results in a serious compromise of the rule of law and the erosion of healthy and open competition, fairness, equity and equality, vertical social mobility - all of which are integral to business development and economic growth.

Social scientists distinguish several types of capital: financial (cash), human (qualifications, skills, abilities) and social. In fact, a whole field of expert studies called social networks and social capital was invented, supported by courses in the university, academic journals, international conferences and book series. The underlying idea is that social ties to society serve two functions, instrumental and expressive, or practical and psychological. The former enables one to get things done better, faster, while the latter is conducive to happiness and wellbeing.

Individuals in China need guanxi to find work, get a promotion, see a doctor, get medical prescriptions, obtain public housing, get admitted into a hospital, kindergarten, school and university, and infinite things in life. There is not a single matter about life and living - from birth, through aging and becoming ill, to dying and death - in a Chinese society that is not decided and shaped by whom one knows - and doesn't know.

Many state-owned enterprises and state-influenced enterprises are unprofitable. Protected through guanxi from bankruptcy and foreclosure, many state-owned enterprises and state-influenced enterprises are either unable or unwilling to service their debts. Along with below-market interest rates and distorted prices, non-market lending has sustained the PRC's unusually high rate of investment in capital assets (i.e., equipment, software, and structures). Individuals and private firms must depend on their guanxi with central, provincial, or local government officials to protect themselves and their property.

Generally, large SOEs and SIEs have guanxi with Chinese leaders, central government ministries, or prominent provincial or local government officials. These patrons use their influence to secure favorable laws, better regulatory treatment, and preferential access to loans. Banks and other depository institutions accumulated an extraordinarily large "legacy" of non-performing loans (NPLs) from past non-market lending, whether through policy loans, guanxi loans, or outright corruption. Given the PRC's weak rule of law and the lack of democratic accountability, provincial and local government officials can exploit their guanxi to enrich themselves and their families through widespread corruption. In the words of a Chinese proverb, "the mountain is high, and the emperor is far away."

The negative connotations of guanxi include nepotism and discrimination. At what point is fostering relationships favoritism? When a parent cooks dinner for the family, is he/she the provider or servant? When an Orthodox Jew in the diamond district trusts his deliveries only to another Orthodox Jew, is that nepotism, discrimination, or a relationship of trust that exceeds contractual law? One can discuss guanxi in the context of cultural perceptions and different social norms; one can contrast guanxi to blat in Russia or cronyism in the USA.

It is not about who and what you are, not about your abilities and values, not even your academic qualifications. It is about who knows you, and whom you know - or one's social location and position in the vertical hierarchy of society. It is about one's adjacency and access to the rich and the powerful. The possession of social resources has critical economic consequences. The social is the economic. At critical times, it may even be a matter of life and death.



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