Editorial by Jeff LoCastro, Founder of North Central China Real Estate AssociationGuanxi (pronounced: Gwan-she) is the method by which all business is done in China. Guanxi translates to “relationships”. In the Chinese business world it is understood as the network of relationships among various parties that cooperate together and support one another. Guanxi is not code for bribery, as some people think. It’s simply Friendship with Benefits.
Guanxi is a tradition covering thousands of years and is present in every transaction in China. There is absolutely no way to get around it. Not even for the Chinese. It is an integral part of life in China. What anyone who is or planning to do business in China must realize is that Guanxi is real, it exists, and you will have to play.
Guanxi is bonding, guanxi is friendship, guanxi is quid-pro-quo. Guanxi is Vito Corleone without the “I’ll make him an offer he can’t refuse.” The Chinese businessmen mentality is very much one of “You scratch my back, I’ll scratch yours.” In essence, this boils down to exchanging favors, which are expected to be done regularly and voluntarily. Therefore, it is an important concept to understand if one is to function effectively in Chinese society.
While you have have to play the game, you don’t have to play with everybody. You can pick and choose who is in your fold. And that’s the art. Who you’ve “got” and factually to what level can your Guanxi take you is the million dollar question. Everyone you meet will boost of the “friendships” they have with officials and “important” people. Even the cab driver will do it.
With good Guanxi it can be tempting to clear a path at every turn. Resist that urge. Use the Guanxi for everything else except cutting corners. If a trusted allie, Guanxi or not, tells you , “Oh, you don’t have to do that – I’ll talk to the government and they will make an exception for you.”, it may well be true, but you are hanging your self over an edge. What if the official who agreed the short-cut leaves office or gets pressure from another multi-level bureaucrat with whom you don’t have Guanxi? What if you’re operating in one of the provinces and the bureaucrat questioning the legitimacy of your project comes from the central government? That can be a substantial problem that will put your entire project at risk. At times, you will be told, “it’s the way we do it in China.” That may be true, but it isn’t the smart move. Use common sense. If you were in Sydney, Tokyo, San Francisco, London, or Berlin and the guy (perhaps even a trusted friend) at the planning counter said, “Hey, don’t worry about getting approval from the building department. I know a guy there. I’ll talk to him. Go ahead and start construction.” . At anytime would you ever respond, “Great. Thanks. We’ll start tomorrow.”? Of course not. If you would not do it in your home town, your home city, your home province, your home state, or your home country. . . . .don’t do it in China. With the help of Guanxi, do it all by-the-book.
The mistake that most businessmen make (nationals or foreigners) is trusting the fate and future of their businesses to Guanxi. It is important, it is critical, it is a necessary part of doing business in China. And to be successful in the PRC, you have to be good at it. But you still have to maintain control; you still have to use common sense.
Friends with benefits doesn’t mean you cede control of your project or enterprise. It means you respect the relationship, yet maintain control over your domain. You use it when necessary and be prepared to give back in proportion. Then set a process in place to maintain, love and hug the relationship for the duration of which you have financial interests in China.
It’s a lot of work, but the Benefit of Friends makes Friends with Benefits worth it in the long run.