The author, Sean Upton-McLaughlin, is a China-focused business consultant with over five years of experience living and working in Mainland China. He consults on strategy, marketing, and cross-cultural issues. For more of Sean’s insights into Chinese culture, please visit http://chinaculturecorner.com/.

Anyone in business has likely heard the phrase “it’s not what you know, but who you know” – this phrase takes on a much deeper meaning within China. Many Chinese businessmen rely almost exclusively on their personal relationships when doing business, and protect their networks with a level of devotion rarely seen in the Western countries. Every businessman knows connections and relationships are important, but why exactly are they so important in China?

From a cultural perspective, Confucianism (a 2,000-year-old Chinese philosophy) places a strong emphasis on observing the proper relationships as being the key to social harmony. The key Five Relationships stressed in Confucianism (and also as part of the concept of ‘Filial Piety’) include: 1) Ruler to Ruled, 2) Father to Son, 3) Husband to Wife, 4) Elder Brother to Younger Brother, and 5) Friend to Friend. This early focus on friends and family is likely linked to the fact that almost all  Chinese guanxi networks are composed of friends, personal contacts and extended family. Unlike the West, most Chinese businessmen do not want to create a “business only” relationship, rather they will want to create a relationship first, and do business second.

From geographical perspective, the large size of Imperial China coupled with difficult and hazardous terrain made traveling to other cities and provinces difficult if not completely out of the question for the average farmer or businessman before modern transportation. Chinese culture has also long placed an emphasis on revering and (and to a degree) worshiping one’s ancestors.

Michael Qin
Energy Technology Industry
Sometimes a person’s personal network is natural, consisting of relatives and old classmates; however creating a relationship with a stranger requires an emotional and financial investment. For example, if I go to the Public security Bureau to apply for a passport, the normal process is 10 days – however if I have a relationship with someone at the Bureau, then I can receive the passport on the second day.

Key to this concept was that in order to revere their ancestors, Chinese people were required to stay near the area where they ancestors were buried. This led to generations of a single family largely staying in the same area with little to no migration. The results of these geographical factors are that many personal and business networks were and continue to be strongest at the town, city or provincial level.

Additionally, due to the autocratic nature of Chinese governing systems and methods, there has always been a lack of fair and reliable social and legal institutions within China. Because of this, Chinese people often feel that they are only really able to truly trust and rely on their closest friends and relatives – they have a tendency to rely on them first for business connections, which is itself becoming a business in China. For example, despite the fact that almost every company will sign a contract at the commencement of a business deal, the actual enforce-ability of said contract is many times very low, and China’s ineffective legal system can take years to successfully resolve cases. It is also not unheard of for judges to be told how to rule on a case by a bureaucratic superior. Thus, having a solid and long term relationship with a business partner, as opposed to a formal and tightly worded contract, is still a more effective way to conduct business within China.

James Tan
Sales Manager
Manufacturing Industry

Your network of “Guan Xi” is like a bank, “Mian Zi” is the money, and “Li Shang Wang Lai” is the way in which you conduct you deposits and withdrawals.

For the Western businessman new to China, remember that your Chinese business partner will likely want to get to know you first, so accept that this is merely the Chinese method of minimizing risk and ensuring both parties can and will share a common ground. Also, while creating relationships is relatively easy,  maintaining them is not. For more information on this, please see additional posts on Mianzi (面子), and Giving Gifts (送礼).