Business relationships in China and Guanxi

Essay, 2006

11 Pages, Grade: 1,7





Types of Guanxi:

Reasons for Guanxi:

How to build Guanxi:







Nowadays a lot of Western companies try to invest in China or want to do business with Chinese firms. Often there are intercultural problems which are hard to understand. Here is an example from Rod MacGregor founder of Nanomuscle Miniature Motors:

“Once when MacGregor went to visit a powerful factory owner in the south of China, an American business associate he was traveling with handed over his business card with a nonchalant, one-handed grasp rather than the more respectful deliberate two-handed technique typically used in China. The factory owner accepted the card but did not offer one of his own. Later, his people called MacGregor and told him to never bring that man back again” [Loyalka, 2006].

However, doing business in China needs more than the knowledge in how to hand over a business card. Especially the interpersonal relationships have an important role in developing a new business. By developing personal relationships, firms can enhance their Marketing effectiveness and efficiency [Sheth,Parvatiyar, 1995 qtd. in Lee,Pae,Wong,1998].


In researching about the importance of close relationships in the Chinese economy no one will miss the word “Guanxi”. Guanxi is everywhere and seems like the ultimate key to the Chinese market. What is behind this storied word? Peng defined Guanxi as a Chinese word for intricate and pervasive networks of social relationships. Guanxi is believed to be so important in Chinese societies, it has been suggested that most Chinese individuals and organisations cultivate these relationships. It is a relationship between two people or organisations containing implicit mutual obligation, assurances, and understanding governing Chinese attitudes towards long-term social and business relationships [Peng, 1997 qtd. in Li,Wright, 2000].

Guanxi can be translated into passing the gates and get connected. The mentioned gates are the inter-personal or inter-organisational differences especially between Western and Chinese firms. There is something like a Chinese Wall between them which must be passed. Guanxi is the key to open the door. This “key” works in two different levels, the inter-personal role and the inter-organizational role.

“…there are at least two major issues that should be studied: whether or not Guanxi should include relationships among organizations, and second, whether or not Guanxi should cover indirect ties and connections through intermediaries“

[Li,Wright, 2000].

The main differences in these levels are based on the different views the Chinese people have.

“People are more loyal to people than to an organization. I like people to be

loyal to me. People down below should be loyal to the superior

rather than to the firm itself” [Redding, 1990 qtd. in Li,Wright, 2000]

In negotiations they first see the person in front of them not the company behind him which means they first must trust the person before they trust the firm. The role of trust is very important in China even it is more important than a contract. Trust is a two-dimensional construct, including perceived credibility and benevolence [Ganesan, 1994 qtd. in Li,Wright, 2000].

The first dimension focuses on the credibility of an exchange partner with the expectancy that the partners’ words or written statements are reliable [Lindskold, 1978 qtd. in Lee,Dawes 2004]. The benevolence includes how a partner is genuinely interested in the other partners’ welfare and how his willing to pursue joint gain is. These points are important for both levels the inter-personal and the inter-organizational. The only problem is that it is really hard work to get trust in the Chinese society. “China is a low-trust society in which its citizens tend to distrust out-group people and trust only in-group people” [Fukuyama, 1995 qtd. in Lee,Dawes 2004].

But Guanxi is more than trust each other. Furthermore aspects which can be observed from third parties are relevant like face saving (Mianzi), reciprocal favour (Renqing), affect and interactions. Some experts see trust as an outcome of Guanxi and the interactions as prerequisite for trust [Lee, Dawes, 2004]. Goffman says that

face is a “positive social value a person effectively claims for himself by the line others assume he has taken during a particular contact. Face is an image of self-delineation in terms of approved social attributes” [Goffman, 1955 qtd. in Lee,Dawes 2004]. Face is the esteem a person has in its environment and preserving this face encourages people to play proper social roles, to be liked by the others of the same group and to encourage the corporate feeling. The result is a reducing of conflicts and a better harmony in the group. Furthermore face has the function to stabilize the group [Lee,Dawes, 2004]. Another point for saving the group’s harmony is the Renqing which obligates the people to help a personal relationship partner if he gets into trouble and on the other hand the partner is morally obligatory to do the same and if he was helped he should return this as soon as possible. If they don’t do that they will loose their face, reputation and ultimately personal relationships and the trust of every group member.


Excerpt out of 11 pages


Business relationships in China and Guanxi
Macquarie University
Asian Business Environments
Catalog Number
ISBN (eBook)
ISBN (Book)
File size
399 KB
Note nach englischem System = D
Business, China, Guanxi, Asian, Business, Environments
Quote paper
Boris Klotz (Author), 2006, Business relationships in China and Guanxi, Munich, GRIN Verlag,


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