Guanxi: How Business Is Done in China

By Scott Stewart – Re-Blogged From Stratfor

The case of Candace Claiborne, a U.S. State Department employee recently arrested and charged with failing to disclose gifts from Chinese intelligence officers, offers many useful insights into the world of spying. In my April 6 column, I discussed her unusual motive for working with Chinese intelligence: to help pay for her son’s education. Another item in the criminal complaint against Claiborne touches on a more commonplace, but equally striking, issue. The complaint mentions that Claiborne sent her son a message discussing guanxi, the complex cultural system that governs personal relationships in China. Guanxi typically describes the moral obligations that arise from giving and receiving personal gifts or favors. The custom is generally considered a natural way of relating to people and conducting business in China. Many Western businesses, on the other hand, view guanxi as corruption.

Of course, Claiborne’s relationship with Chinese intelligence went beyond the boundaries of guanxi, given her top-secret security clearance and access to classified information. Nevertheless, the case seemed to be a good excuse to revisit the topic. The often vast difference between the Chinese and Western views of the practice can cause serious problems and misunderstandings in the world of business. As the underlying principle that guides relationships in China, the convention is far too integral a part of Chinese culture to be completely eliminated. But if Western corporations can’t eradicate guanxi, they can at least cultivate a better understanding of the practice to ensure that it stays within the confines of laws such as the U.S. Foreign Corrupt Practices Act or the British Bribery Act.

Diverging Points of View

The codes of conduct that outline Western business ethics and company policies — and the external laws that guide and regulate them — hold that company interests always come before personal ones. Each new hire accepts this principle as an ethical obligation to his or her employer. Employees who exploit their positions to benefit themselves, their friends or their relatives are viewed as unethical or corrupt. If, for example, someone arranged for his or her company to purchase goods from a friend or relative’s business, despite the products’ inferior quality or higher price, the employee would face harsh repercussions at work, and perhaps even civil or criminal penalties.

The Chinese culture, by contrast, has fostered a different set of business practices over the milleniums. The principles of guanxi govern business ethics (and all other personal interactions, for that matter). Guanxi places the moral obligations that stem from personal relationships above all other considerations, including an employer’s code of conduct and even laws. These obligations, moreover, often transcend time and distance. The notion that accepting employment with a company, particularly a foreign company, could somehow override one’s duties to people with whom one has long-term relationships is an alien concept under guanxi. In fact, putting a company’s interests ahead of personal obligations would be considered immoral. From this cultural perspective, a Chinese national working for a Western company would see it as his or her moral duty to steer business to a longtime friend’s company, regardless of price or quality. If a relationship requires that gifts be provided in return for certain favors, guanxi likewise sanctions the exchange. The practice is considered not only ethical but also legal.

Still, guanxi has its limits; it is not a license to steal. Like other tenets of Chinese culture, the principle is based on moderation. Excessive guanxi violates both ethical and legal norms. In the Claiborne case, the gifts that the two Chinese intelligence officers gave their recruit — and the ulterior motives behind them — crossed the lines of moderation and into the realm of unlawful excess. (Intelligence operations frequently transgress the legal and ethical boundaries of nearly every culture, though.)

A Cultural Conflict

At its heart, Chinese society emphasizes relationships far more than Western society does, and the difference becomes especially clear when comparing each culture’s business practices. Western business culture is transactional, while Chinese business culture is relational, founded in large part on honor and respect. Chinese practices value social harmony in addition to profits. Based on these diverging perspectives, a Western businessperson (or legal system) may view as corruption what a Chinese employee considers a normal part of doing business. A Chinese person, meanwhile, would find the Western custom of evaluating all business relationships on a purely financial basis peculiar and immoral.

Negotiating this cultural conflict is no easy feat. Chinese businesspeople often view Western companies as incomprehensible entities because of the strict codes of conduct that govern them. As much as Western firms may want to discourage guanxi, insisting that Chinese employees abandon the practice can turn them against their employers. And while their loyalty to their companies declines, their devotion to friends and family may intensify — and with it, their adherence to guanxi. Employees often try to hide their acts of guanxi as they come to understand Western business standards in an effort to continue the practice. Even Chinese-born employees who have prior experience in the West, whether through education or through previous employment, may have obligations to personal relationships that, in their view, take precedence over business and legal obligations. For many Western companies, their commitment to guanxi can come as a shock.

Not all guanxi is bad for business, though. So long as it stays within acceptable legal bounds, the practice can even benefit a company. The bonds of guanxi can be useful, for example, in negotiating contracts or arranging competitive deals for goods or services with an employee’s friend or relative. Similarly, if an employee has a relationship with someone in local government, guanxi can help the company overcome regulatory or zoning hurdles. Although a gift offered in return for the assistance could land a Western firm in legal trouble, guanxi doesn’t always prescribe a quid pro quo deal. Often, people simply do favors for their friends with no expectation of repayment — a system not unlike the old boy networks that are still prevalent in Western business circles.

Setting Boundaries

Since guanxi is so deeply rooted in the Chinese culture, Western companies must tread lightly when trying to address the matter, much to the dismay of corporate security directors, compliance officers and internal control auditors. Chinese employees often interpret Western companies’ efforts to eliminate corruption as an attempt to eradicate guanxi and, by extension, to disrespect and subvert their culture. That perception, in turn, can alienate workers from their employers. But if companies take the proper approach to guanxi, they can mitigate the fallout from the cultural clash.

First, Western companies doing business in China must accept that by operating in the country, they become subject to some of its ideals and norms, including practices that deviate from their own customs. Second, they must recognize that Chinese employees regard many U.S. business practices as alien and unnatural, just as some Westerners view guanxi as unethical. Finally, they must understand that China is not a corrupt society, but simply a different one, with a set of ethics that developed independent of — and occasionally in stark contrast to — those in the West. The culture’s diverging mores make it difficult for Western companies to impose their culture on Chinese employees without antagonizing them, and the process can be unnecessarily destructive.

As an alternative, companies could publicly acknowledge guanxi as a cultural practice and set strict parameters for its appropriate use. This solution enables firms to minimize legal problems in the West while still doing business in China. Many Western businesses have already enacted such policies; before entering negotiations with a prospective new hire, they lay out the legal confines within which employees can practice guanxi. The approach doesn’t always keep employees from overstepping the bounds of Western law, but more and more companies are trying it, and the results are promising.

Though guanxi still exerts a strong influence in China, the country’s business environment is starting to show signs of conforming to Western norms. At the same time, Western companies will need to keep adapting their behavior to accommodate Chinese customs. The rules of business in China are simply different from those in Europe or the United States. And Western companies must recognize this difference before they can effectively address guanxi.

CONTINUE READING –>

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2 thoughts on “Guanxi: How Business Is Done in China

  1. Guanxi means “relationship” in Chinese. Keeping Guanxi means upholding the relationship !

    The guy had been caught with gifts. If he was offered beautiful girls as friends instead could they catch him?

    Like

    • You never know what secrets eventually will come out. It kind of reminds me of what Eddie Cantor said about a wife in a very old song, “You better keep her, you’ll find it’s cheaper, than makin’ Whoopie.” 8^)

      Liked by 1 person

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