Guanxi

In a personal context

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. The two people need not be of equal social status. 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.

Guanxi also refers to the benefits gained from social connections and usually extends from extended family, school friends, workmates and members of common clubs or organizations. It is customary for Chinese people to cultivate an intricate web of guanxi relationships, which may expand in a huge number of directions, and includes lifelong relationships. Staying in contact with members of your network is not necessary to bind reciprocal obligations. Reciprocal favors are the key factor to maintaining one’s guanxi web, while failure to reciprocate is considered an unforgivable offense (that is, the more one asks of someone, the more one owes them). Guanxi can perpetuate a never-ending cycle of favors.

The term is not generally used to describe interpersonal relationships within a family, although guanxi obligations can sometimes be described in terms of an extended family. Essentially, familial relations are the core of one’s interpersonal relations, while the various non-familial interpersonal relations are modifications or extensions of the familial relations. Chinese culture's emphasis on familial relations informs guanxi as well, making it such that both familial relations and non-familial interpersonal relations are grounded by similar behavioral norms. An individual may view and interact with other individuals in a way that is similar to their viewing of and interactions with family members; through guanxi, a relationship between two friends can be likened by each friend to being a pseudo elder sibling–younger sibling relationship, with each friend acting accordingly based on that relationship (the friend who sees himself as the "younger sibling" will show more deference to the friend who is the "older sibling"). Guanxi is also based in concepts like loyalty, dedication, reciprocity, and trust, which help to develop non-familial interpersonal relations, while mirroring the concept of filial piety, which is used to ground familial relations.

Ultimately, the relationships formed by guanxi are personal and not transferable.

In a business context

In China, a country where business relations are highly socially embedded, guanxi plays a pivotal role in the shaping and advancement of daily business operations by allowing inter-business relationships and relationships between businesses and the government to grow as individuals representing these organizations work with one another. Specifically, in a business context, guanxi occurs through individual interactions first before being applied on a corporate level (ex. one member of a business may perform a favor for a member of another business because they have interpersonal ties, which helps to facilitate the relationship between the two businesses involved in this interaction). Guanxi also acts as an essential informal governance mechanism, helping leverage Chinese organizations on social and economic platforms. In places in China where institutions, like the structuring of local governments and government policies, may make business interactions less efficient to facilitate, guanxi can serve as a way for businesses to circumvent such institutions by having their members cultivate their interpersonal ties.

Thus, guanxi is important in two domains: 1) social ties with managers of suppliers, buyers, competitors, and other business intermediaries; and 2) social ties with government officials at various national government-regulated agencies. Given its extensive influential power in the shaping of business operations, many see guanxi as a crucial source of social capital and strategic tool for business success. Through guanxi, businesses receive insider information, raise their awareness regarding specific government policies, and gain exclusive access to resources. Knowing this, some economists have warned that Western countries and others that trade regularly with China should improve their "cultural competency" in regards to practices such as guanxi. In doing so, such countries can avoid financial fallout caused by a lack of awareness regarding the way practices like guanxi operate.

The nature of guanxi, however, can also form the basis of patron–client relations. As a result, it creates challenges for businesses whose members are obligated to repay favors to members of other businesses when they cannot sufficiently do so. In following these obligations, businesses may also be forced to act in ways detrimental to their future, and start to over-rely on each other. Members within a business may also start to more frequently discuss information that all members knew prior, rather than try and discuss information only known by select members. If the ties fail between two businesses within an overall network built through guanxi, the other ties comprising the overall network have a chance of failing as well. A guanxi network may also violate bureaucratic norms, leading to corporate corruption.

Note that the aforementioned organizational flaws guanxi creates can be diminished by having more efficient institutions (like open market systems that are regulated by formal organizational procedures while promoting competition and innovation) in place to help facilitate business interactions more effectually.

In East Asian societies the boundary between business and social lives can sometimes be ambiguous as people tend to rely heavily on their closer relations and friends. This can result in nepotism in the work force being created through guanxi, as it is common for authoritative figures to draw from family and close ties to fill employment opportunities, instead of assessing talent and suitability as is the norm in Western societies. This practice often prevents the most suitably qualified person being employed for the position. However, guanxi only becomes nepotism when individuals start to value their interpersonal relationships as ways to accomplish their goals over the relationships themselves. When interpersonal relationships are seen in this light, then, it is usually the case that individuals are not viewing their cultivation of prospective business relationships without bias. In addition, guanxi and nepotism are distinct in that the former is inherently a social transaction (considering the emphasis on the actual act of building relationships) and not purely based in financial transactions, while the latter is explicitly based in financial transactions and has a higher chance of resulting in legal consequences.

In a government context

For relationship-based networks such as guanxi, reputation plays an important role in shaping interpersonal relations. As a result, the government is still the most important stakeholder, despite the nation's recent efforts to minimise government involvement. Key government officials wield the authority to approve projects, allocate resources, and distribute finances. Thus, it is especially crucial for international companies to develop harmonious personal relationships with government officials. In addition to holding major legislative power, the Chinese government owns vital resources including land, banks, and major media networks and wields major influence over other stakeholders. Thus, it is important to maintain good relations with the central government in order for a corporation to maintain guanxi. However, the issue of guanxi as a form of government corruption has been raised into question over the recent years. This is often the case when business officials interpret guanxi's reciprocal obligations as unethical gift giving in exchange for government approval. The line drawn between ethical and unethical reciprocal obligation is unclear, but the nation currently is looking into understanding the structural problems inherent in the guanxi system.

Ethical concerns

In recent years, the ethical consequences of guanxi have been brought into question. While guanxi can bring benefits to people directly within the guanxi network, it also has the potential to bring harm to individuals, societies and nations when misused or abused. For example, mutual reciprocal obligation is a major component of guanxi. However, the specific date, time and method are often unspecified. Thus, guanxi can be ethically questionable when one party takes advantage of others’ personal favors, without seeking to reciprocate. A common example of unethical reciprocal obligation involves the abuse of business-government relations. In 2013, a CCP (Chinese Communist Party) official criticised the government officials for using public funds of over 10,000 yuan for banquets. This totals to approximately 48 billion dollars worth of banquets per year. Guanxi may also allow for interpersonal obligations to take precedence over civic duties.

This question is especially critical in cross-cultural business partnerships, when Western firms and auditors are operating within Confucian cultures. Western-based managers must exercise caution in determining whether or not their Chinese colleagues and business partners are in fact practicing guanxi. Caution and extra guidance should be taken to ensure that conflict does not occur as a result of misunderstood cultural agreements.

Other studies argue that guanxi is not in fact unethical, but is rather wrongly accused of an act thought unethical in the eyes of those unacquainted with it and Chinese culture. Just as how the Western legal system is a reflection of the Western ethical perspectives, it can be said that the Eastern legal system functions similarly so. Also, while Westerners may misinterpret guanxi as a form of bribery, the Chinese recognize guanxi as a subset of renqing, which likens the maintenance of interpersonal relationships to a moral obligation. As such, any relevant actions taken to maintain such relationships are recognized as working within ethical constraints.

The term guanxixue (关系学, the 'art' or 'knowledge' of guanxi) is also used to specifically refer to the manipulation and corruption brought about by a selfish and sometimes illegal utilization of guanxi. In turn, guanxixue distinguishes unethical usage of guanxi from the term guanxi itself. Although many Chinese lament the strong importance of guanxi in their culture because of the unethical use that arises through it, they still consider guanxi as a Chinese element that should not be denied.

Similar concepts in other cultures

Sociologists have linked guanxi with the concept of social capital (it has been described as a Gemeinschaft value structure), and it has been exhaustively described in Western studies of Chinese economic and political behavior.

Western vs. Eastern social business relations

Similar to guanxi, Western relationship marketing involves a mutual, quality, ongoing relationship between two business parties. The four dimensions of business networking success involve: trust, bonding, reciprocity, and empathy. However, the perspectives in which these dimensions are interpreted and incorporated into business operations are vastly different in the East versus the West.

In the Western perspective, trust is referred to as mutual reliability, dependability, and reciprocity. However, in the Eastern perspective, trust is also synonymous with obligation, in which guanxi is expected to be maintained through continuous long-term association and interaction. Whereas bonding in a Western context may refer simply to common interests with the client, bonding in an Eastern context refers to a close friendship with the client. The Chinese system of wu-lune (the basic norms of guanxi) supports this Eastern attitude, emphasizing that one’s fulfillment of one’s responsibilities in a given role ensures the smooth functioning of Chinese society. Reciprocity is also a dimension which is much more emphasized in the East than in the West. According to Confucianism, each individual is encouraged to become a yi-ren (righteous person) and repay a favor with significantly more than one has received. Lastly, empathy is a dimension that is highly embedded in Eastern business relations, more so than in its Western counterpart. The Confucian understanding of ren, which also equates to “Do not do to others as one does not want others to do to him”, stresses the importance for sellers and customers to understand each other’s needs.

Cross-cultural differences in its usage also distinguish Western relationship marketing from Chinese guanxi. Unlike Western relationship marketing, where networking plays a more surface-level impersonal role in shaping larger business relations, guanxi plays a much more central and personal role in shaping social business relations. Chinese culture borrows much of its practices from Confucianism, which emphasises collectivism and long-term personal relations. Likewise, guanxi functions within Chinese culture and directly reflects the values and behaviours expressed in Chinese business relations. For example, reciprocal obligation plays an intricate role in maintaining harmonious business relations. It is expected that both sides not only stay friendly with each other, but also reciprocate a favour given by the other party. Western relationship marketing, on the other hand, is much more formally constructed, in which no social obligation and further exchanges of favours are expected. Thus, long-term personal relations are more emphasised in Chinese guanxi practice than in Western relationship marketing.