The Art of Guanxi - Blogs - Aussie Stock Forums

View RSS Feed


The Art of Guanxi

Rate this Entry
Read it here... click me.

First we must understand Chinese culture when it comes to relationship building, or guanxi (pronounced gwan-shee). Having guanxi is utterly essential to doing business in China. There are many definitions of guanxi, but it would best be described as ‘connections’ and ‘relationships’.

Building relationships in China is a time-consuming process and not easy, especially as a foreigner. But once you do build your guanxi, it comes with a level of loyalty and camaraderie that will support you in tough times...
Isabelle missed two of the most aspects of Chinese guanxi, and I don't blame her. They are called TRUST, and its cousin, HONOUR.

Yes, guanxi is actually quite basic. To enforce "trust" between two business parties in the Western world, we rely on laws and a paper contract, spelling out in detail about what why where when who should/must/will/shall do this or that, etc...

Over here, to enforce a paper contract, you rely on the whole legal system, court, judges, lawyers, police, accountants, etc... a whole plethora of state apparatus and trained professionals.

Over there in China, where such legal system is lacking and the "concept" of Western law is still alien to most people, how do you expect the Chinese to conduct business among themselves or with a foreign business party?

That's when trust and honour become important.

That's where guanxi comes in. The longer is the guanxi between two business partners, the deeper is their understand of each other and hence the stronger is the trust and honour linking them together.

It takes time to build guanxi because it takes time to get to know a person, or a business partner... it takes time or event to build up trust.

Event? Yes, sometimes an event or a sincere gesture from one party to another could build trust.

To illustrate in a negative way - the recent Rio's abandoning Chinalco in the last hour and then signing up with BHP almost immediately was a complete "backhander" to their guanxi. It's a treacherous killer move, and Rio's management could assume from then on any deal they sign with the Chinese, that piece of paper contract would be treated with "contempt" - if the Chinese could get away from it, they would.

How hard would that be if the Chinese really return a backhander to Rio? Well, just try imagine Rio going to a Chinese court to sue for their piece of silver...

Trust - a simple yet very powerful word... without which, it would be almost impossible for a business to operate in China. Right now, Rio I believe is falling into that pit - it has dishonoured its reputation and has lost the trust of a very important member in the inner circle of the Chinese leadership.

Just think about this - Rio sold 58% of their iron ore to China last year and is planning to expand their iron ore production next year... hoping to sell more to the Chinese!

... now tell me why the investors are so "bull" on Rio and its management?

Submit "The Art of Guanxi" to Digg Submit "The Art of Guanxi" to del.icio.us Submit "The Art of Guanxi" to StumbleUpon Submit "The Art of Guanxi" to Google



  1. MRC & Co's Avatar
    At the same time, the Chinese need to learn to do business in a Western way.

    They need the West as much as the West needs them.
  2. haunting's Avatar
    True to an extent. But in this context, the elephant is the Chinese demand/market, not Rio's supply. As pointed out earlier - China can live without Australia, but Australia can't live without China. This is a very unpleasant thought that many people in this country find hard to accept. Harder to accept still is China has a market system that is a hybrid of "capitalism" and "communism", one where the rule of laws is not the ultimate deciding factor.

    But market freedom will always apply when come to international trades - Rio doesn't have to sell to the Chinese market if it doesn't want to.

    Fact of life.
  3. haunting's Avatar
    OZ vs China...

    The issue had to be dealt with in a sensitive yet strenuous way, he said, because the Australia-China relationship was an important one.

    "We're friends but we're friends that tell each other what we think and what's on our mind at any particular time.''
    Is this how friends treat each other?

    Mr Crean met Sha Hailin, deputy secretary-general of the Shanghai Government, yesterday after trying but failing to meet more senior officials.

    "In the Shanghai Government you have the mayor of Shanghai, eight vice-mayors, one assistant mayor and then below that you have 11 deputy secretary-generals," said a Shanghai diplomat. "Mr Sha is number five in the hierarchy of deputy secretary-generals."

    Those 16 officials are, in turn, outranked by the top 16 in the Shanghai Communist Party.
    ** been saying for a long time... never never let "faces" be torn coz mending face could take a long time. Your really do not want to speak what is in your mind even when you are talking to your "true friend"... not in the public and not in international diplomacy. Saving face is very important in China and any good and decent advice should be done in private and not in a "lecture". Krudd scored big in the international arena with his talk of human rights on the Chinese expense and now the Chinese is returning the favour...

    There is a clear breach of protocol in how Crean is being treated in China as the Chinese official is way too low ranking to his - and this is the Chinese way of "diplomacy". All action, no words. Subtle but effective... the best Krudd can do now is not to get involved personally. That will be asking for humiliation. He should know better.

    And with that, the usual diplomatic channel will fall back to the usual "formality"... where the govt will learn it through the Chinese news source.

    The way moving forward? May be through a third party, like the Singapore govt or some other "Asian friend" to smooth out the strained relationship... by looking around and doing a quick count, I am not sure if there are still many "true Asian friends" around wanting to take up this role for Australia.
  4. haunting's Avatar
    I am feeling flabbergasted... Krudd is doing everything wrong at this point. There's now every chance that Stern Hu will be incarcerated for a long time with this Chinese reaction.

    1) Instead of seeking help from a "friend" of China and going the quiet softly "Chinese" approach, Krudd instead went to the USA, asking them for help to pile on more pressure on China. And Smith did one better to raise the matter further afield, he repeated the same "noise" (according to the Chinese) in Egypt.

    Judging by the Chinese reaction, does anyone think this tack has worked? Did China react as if they are taking note of the "international pressure"? Not really, not how I see it anyway. It only serves to toughen up the Chinese stance, pushing them to make it unequivocally clear to the world that when come to matter involving their "sovereign judiciary independence", they won't be pushed around.

    This is 2009 and not the 1980, for goodness sake... can someone tell Krudd or the USA please?

    2) Even on moral ground... still remember the former defence minister, Fitzgibbons? Anyone? He walked from his post, and his sin was? Yes, he accepted some free gifts and free trips and the people here didn't like it.

    Over in China, Stern Hu and his staffs were caught engaging in activities that are deemed too unacceptable even by the Chinese standard, why should/would the reaction be any difference here?

    Let's be fair dinkum about this whole saga.

    Playing tough against China is not going to work. For that matter, this is the second time the Chinese are giving a similar warning, that the the actions thus far from the Aussie govt are working against "Australia's interest". I think Krudd should take note and change tack.

    Mr Qin said Australia's remarks "cannot change the objective facts, nor can it have influence on the relevant Chinese authorities which are dealing with the case according to our law".

    But he also underlined the perilous nature of China's legal system, treating as fact the allegations levelled against Mr Hu and his three staff. "The actions of the Rio Tinto staff have caused losses to China and China's interests," he said. "I believe Stern Hu and Rio Tinto are fully aware of this."

    Mr Qin warned that Australian advocacy for Mr Hu would backfire. "We're firmly opposed to anyone deliberately stirring up this matter," he said. "This is not in accordance with the interests of the Australian side."
    Link here.
Aussie Stock Forums