With China frequently in the news these days — and not just in the business section but in fantastic front-page stories about a blind human rights activist making a nighttime dash for sanctuary in the U.S. Embassy, and the wife of a top Communist Party official poisoning a British citizen who was her business partner (and also perhaps an MI6 spy) — it is easy to ponder how different a place China can be from what we regard as “normal.”

One huge difference stands out: In China relationships and situational outlook (“it depends”) trumps law and universal agreement on what is right and wrong. And in place as both a cause and an effect of this difference is the Chinese notion of guanxi.

Guanxi is loosely translated as “relationships” or “connections” and is perennially cited in China Business 101 classes as the key to doing business there; conversely, it is also described as a formalized system of corruption.

Like many situations in China, the issue of guanxi is complex to non-Chinese, but not SO complex that it cannot be navigated by those with some perspective.

Understand these three points for a start:

  • Guanxi means establishing local relationships in order to build a business network and to get “plugged in” to local information channels. Seen in this light, guanxi is something foreigners must pursue for any chance of success in China. Spend time with local partners regularly — beyond just exchanging gifts at the first meeting. Do not delegate the relationship-building function solely to local staff or to an agent. Guanxi exists at the personal, not organizational level. If you are never there, you are not building guanxi.       
  • Guanxi means using connections as the preferred route to getting things done more quickly and expediently. With guanxi, existing rules or procedures may be circumvented based on one’s relationship with people having the power to affect the situation. While this may seem like a worthy shortcut to success, it will not necessarily lead to profitable, sustainable business. Continued success in this scenario depends on the individual relationship and carries off-the-books costs of mutual obligation and otherwise. This view of guanxi has parallels with corruption, conflict of interest, and misuse of corporate or state assets.
  • The concept of guanxi and all its implications underpins thinking and decision-making within the Chinese system. Within this framework, someone is valued based more on his connections and level of power, than on his personal attributes or character. The view of relationships is utilitarian and using these relationships (relying on the friendship instead of due diligence or process, for example) is seen as the appropriate way to get things done. A system of adherence to, and equality under law can be very confusing for Chinese who are new to working in a more global setting.
written by Betsy Neidel, the founder of Blue Heron Holdings LLC.