You Scratch My Back, I’ll Scratch Yours: Introducing Guan Xi

The Chinese term for relationships, which we use throughout this book, is guan xi (gwon shee). Guan xi has no literal translation to English, but generally, the Chinese use the expression you (yo) guan xi, or “you have guan xi,” to mean that someone has a particular relationship or is generally well connected. The bottom line is that you either have it or don’t — and you definitely want to have guan xi.

In some ways, doing business with guan xi is similar to the way people do business in the West. Guan xi is a more muscular form of the principle that it’s not what you know; it’s who you know. Guan xi is mainly based on trust and the understanding that favors should be returned, which are also important in Western business relationships. However, subtle and important differences crop up between the way these factors work in the West and in Chinese guan xi. The following sections help you understand those differences.

In the end, a good business plan can succeed without good guan xi (although you’re likely to develop good guan xi as you succeed, because everybody loves a winner); likewise, a bad business plan will fail even with the best possible guan xi. See Chapter 4 for more about planning for China.

Trusting performance

Parties must trust each other in order to have guan xi. (No, they don’t need trust because they’re doing something illegal and have to trust each other to keep quiet!) The trust upon which guan xi rests is broader and more about common sense. For example, if an official with whom you have guan xi promises to expedite an approval process, he or she trusts that you have your documentation in order and that your application doesn’t contain any surprises.

China has neither credit reporting agencies nor a Better Business Bureau, so good information on potential business associates is hard to come by from official sources. This situation makes guan xi that much more necessary for doing business. Trust is an important factor because, as we discuss later in this chapter, Chinese businesspeople frequently recommend their business contacts to one another. If a businessperson provides a reference for somebody who subsequently does a bad job, then the referring person ends up looking bad and his or her guan xi weakens.

Guan xi is based on implied reciprocity. Many Westerners have the misconception that if you “buy” the right Chinese officials, you can accomplish anything. Although China, like all countries, has a certain level of corruption, officials who can be paid off are the exception, not the rule. That said, expecting something in return when you make an effort on someone else’s behalf is human nature.

In practice, people with whom you have guan xi will usually help you while expecting something in return in the future. In other words, if the Chinese party thinks you can help in the future, he or she will view the favor as an investment. This practice may be analogous to the scene in the first Godfather movie where Vito Corleone promises to help the funeral parlor owner. In the scene, Corleone says he’ll help the parlor owner get revenge but that he may someday call upon the parlor owner to pay back the favor. Unlike the Godfather though, in guan xi, the Chinese person is unlikely to come right out and tell you that he or she expects something in return.

Calling in favors for a speedy response Guan xi sometimes can help with relatively mundane tasks. Here’s the story of one businessman from Taiwan who’s based in Shanghai: When he moved into his new apartment, he called the phone company (a monopoly) to install broadband Internet. The phone company told him that it had no broadband lines available and that he should call back the next day. The next day the story was the same, as was the day after that and the day after that. Finally, he got so frustrated that he went to the office where the Internet installation scheduler worked. He went to the scheduler’s office and pleaded his case. The scheduler unsympathetically opened his scheduling book, looked through it for a moment, and then said, “I’m sorry, but we have no lines available.” The businessman left in a huff. The man then called a friend who had previously told him that he knew people at the phone company. The friend placed a phone call, and within a few days, the Internet was installed!

Repaying favors

Beyond gaining someone’s trust, you have to figure out how to repay the favor. The range of possibilities is endless, from sharing a few drinks or dinner to helping an official’s relatives find jobs (hopefully not with your company). Some repayment obligations may not be worth the favor you’re getting. Carefully weigh what you can do to repay — and are comfortable with — before accepting favors.

Never offer money when asking for a favor. Offering a bribe is highly insulting to all but the most corrupt officials. In addition, bribing or attempting to bribe a foreign government official may violate your home country’s laws, such as the United States’s Foreign Corrupt Practices Act. Guan xi isn’t about bribes and corruption; it’s about developing long-term mutually beneficial relationships that can help your business grow and profit in China.

Beyond bribes, offering up an obvious quid pro quo when asking for a favor is usually bad form. If you have a commercial arrangement to propose, that’s fine. Don’t couch it in terms of doing favors, though.

One of the crucial aspects of developing guan xi is to constantly think about how you can help people you know. You shouldn’t forget when people do favors for you, and you should try to do even small favors for them without being asked. When thinking about the possible ways to grant or repay a favor, keep the following ideas in mind:

✓	At the time that somebody does you a favor, she may not have any specific repayment in mind — she may simply feel that you’re going places and may be able to help her down the road. Asking whether she can use your help in any way doesn’t hurt. She may tell you not to worry about it, but don’t take such a denial literally — be ready to repay the favor when you see an opportunity.
✓	Often you make the repayment over time, though not always. For example, you may know a certain person who’d be a good introduction for your new Chinese contact. To develop guan xi with your new contact, introducing this person early in the relationship may be a good starting point.
✓	Even small favors, such as editing some English for a person’s business or advising him on a trip to your country, are appreciated and can help to build your guan xi.
✓	Most Chinese prefer to develop ongoing relationships rather than doing mutual one-off favors. At the start of a relationship, try to think of what your obligations may eventually amount to. Depending on whom you’re dealing with, you may not be comfortable receiving favors from a particular person. Guan xi obligations are very important, and you risk seriously offending someone if you refuse a later request for help. Therefore, it’s vital that you assess who is offering to help you and think about whether you’d really want to help him or her later.

The best way to deal with a request you’re uncomfortable with is to avoid putting yourself in that situation in the first place. If you do find yourself in such a situation, though, refuse without using very direct language to help the other party save face (see Chapter 11). In many cases, rather than saying you can’t do it, it’s better to say something to the effect of “it may be difficult.” Then try to think of a compromise you’re comfortable with. Of course, you can’t make everybody happy all the time.

Developing guan xi in government and business

Many foreigners may find it unusual that, in China, having relationships with both businesspeople and government officials is a good thing. Even maintaining a friendly relationship with a relatively low-ranking government employee can pay off.

The People’s Republic: Guan xi with government officials

Guan xi with government officials can be quite helpful in China, especially when you need to navigate the opaque processes and bureaucracies of the Chinese government. If you develop relationships with the right officials, they may be able to

✓	Advise you in advance about whether you’re likely to receive approval (or alternately, tell you what you need to do for approval); this boost can spare you a lot of time and money.
✓	Expedite the approval process in certain situations.
✓	Use a favorable interpretation of the law to help you — for example, an official may read the law in a way that gives your business the most favorable tax treatment possible (keeping in mind that the national and local governments have complicated tax schemes to provide incentives for the development of certain industries).
✓	Tell you about future developments that may be important to your business, such as road construction or possible changes in the law.

Guan xi also may come into play when submitting competitive proposals for a project, such as property development. Having a good relationship with the deciding officials definitely gives you an edge.

Westerners commonly misunderstand why having good guan xi with the government is so important. The main point is that guan xi won’t get officials to break rules for you. Instead, it may get them to use the rules’ inherent flexibility to help you out.

The people: Guan xi with Chinese businesspeople

The Chinese are more inclined to mix friendship and business than most Westerners are. In fact, many Chinese prefer to do business with people they’re comfortable with. Otherwise, the Chinese prefer to do business with people their friends can vouch for.

Although using such connections is normal in the West, the difference is that a personal validation that’s unrelated to business (for instance, “Zhang is a good guy”) may carry almost as much weight as a business one (“Zhang did a great job installing my plumbing”). This idea is an important application of the trust factor of guan xi; although the person vouching for Zhang may not know firsthand whether he’s a good contractor, she’s comfortable with Zhang and trusts that Zhang does a good job in his business because of the way he handles himself in their personal dealings. Therefore, if you develop good guan xi with businesspeople, they may refer customers to you. As always, though, remember the principle of reciprocity — you may need to hire at least some of the suppliers that they refer to you.

One of the most common business favors is to give or receive introductions to one’s contacts. Asking for an introduction (or for other reasonable favors) is fair game, provided you believe the other person is comfortable with you and will be comfortable with the favor you’re asking. You may want to be a bit indirect, though, if you haven’t known the person you’re asking that long.

For example, instead of asking for an introduction to Ms. Zhu, you may want to ask whether the other person can introduce you to someone who can help you with such-and-such.

People often provide introductions over a meal. In China, friends rarely split bills — they take turns paying. If someone is giving you an introduction, remember who’s doing whom the favor. You should pay for the entire bill if the meal is just the three of you, provided that the person arranging the meal lets you do so.