David Wolf at The Silicon Hutong blog just came out with a superb post riffing on the meaning of guanxi. His post, A Few Notes on Guanxi (the original link no longer works), more accurately and concisely defines guanxi than anything I've seen. It is so good and so important, I feel I have no choice but to post it wholesale below.
First, to translate “guanxi” as simply “relationships” is a dangerous oversimplification, particularly when proffered to someone unfamiliar with Chinese culture. First, guanxi are tiered, based on a Confucian hierarchy: familial relationships, long-term friends, classmates, and schoolmates are the nearest ranks, and to those no stranger -- Chinese or foreign -- will ever have access. At best we [foreigners] are relegated to outer rings like colleague, in-law, business partner, or acquaintance. There are exceptions, like Sidney Rittenberg, but he is the rara avis that proves the rule.
Second, guanxi are personal and non-transferable, they are not enterprise. There is no way to hire someone and have him hand over his guanxi to the company. You want the guanxi, you keep the employee. That’s why China’s princelings, the offspring of senior Party cadres, have sinecure. Consultants who hawk guanxi are simply renting their relationships, they know it, and from such realities are retainers made.
Third, guanxi involve mutual obligation. If you use someone in your company with guanxi to get assistance from an official, there is an implicit quid pro-quo, hence ... concerns about the coziness of guanxi and corruption. Further, few westerners understand that there are complex social obligations involved in such relationships, your average Chinese executive would sooner burn his employer than his close connections.
Fourth, guanxi die. Or get sacked. Or retire. Or get transferred. Or quit and go into business. They are ethereal, fleeting, and in constant need of regeneration, repair, and re-creation. They are not forever.
Fifth is the hammer-nail problem: the people your employee or partner knows may not be the exact right people to get things done, but that’s who they know, so that’s who they use. When that happens, watch the oversold connection drop the ball, or get smacked. I have watched it happen, and it is not pretty.
Or they may just limit you. I know of a western media company with no special unique advantage in the market that is doing well in exactly one province: the place they have guanxi. They’re happy with how they’re doing in that one province, but they have been utterly unable to scale their business: they’ve been hemmed in by their relationships.
Finally, it is worthwhile noting that guanxi today are of declining importance for most businesses. The scope of industries in which it is necessary to cultivate exclusive ties at a high level is declining over time.
Business fundamentals first, second, and third. Special relationships only to the extent necessary.
This is not a comprehensive discussion of guanxi, and I’ve simplified it with the sole goal of underscoring how misunderstood the concept is in the west. But it gives you an idea of why misunderstandings around guanxi are so common as to make the whole issue a litmus test of an individual’s level of understanding of Chinese business.
One nota bene that must be emphasized. Though guanxi is taking a back seat to market fundamentals in many industries, and policy changes are drawing away the value even the best connections in others, there are some businesses in which it is absolutely essential to hire, retain, or otherwise acquire high-level influence. On that list I would include banking, investment banking, and infrastructure.
What do you think?
UPDATES: China quality control guru, Renaud Anjoran, wrote about the value (or lack thereof) of guanxi in sourcing and QC, entitled Why you should ignore guanxi in China. According to Anjoran, those sourcing from China should focus more on "face" than guanxi. I agree.
2026 UPDATE: David Wolf died on March 27, 2023. He was a wonderful human being and a real mentor to me on China. I learned a great deal from him, and I am grateful I had the chance to know him. His obituary and Arun Sudhaman's remembrance of him are well worth reading.
Sixteen years after this post first appeared, I still agree with David's central point. I've seen too many foreign companies put their faith in someone who supposedly knows the right people in China. Those connections sometimes help, but they are no substitute for knowing who you are dealing with and protecting your business. The same thinking runs through my more recent post on how to negotiate with your Chinese manufacturers.
