China Guanxi: You Don’t Have It.

Five days ago, I wrote a post on Linkedin, entitled, China Guanxi: You Don’t Have It.  That post essentially counsels to be skeptical of any foreigner who claims to have guanxi and goes on to discuss why this is so and why guanxi is overrated in any event. The post lists out the following reasons for why guanxi is not as valuable as touted:

No foreigner can create a Chinese-style guanxi network. Guanxi refers to a vast network of connections arising from party, family, and work connections that may go back several generations. No guanxi network relies on a single individual. The elimination of one member of the network is therefore not fatal. Foreigners almost always rely on only one or two individuals for their supposed connection. This kind of network is too fragile to be of enduring value. Foreign investors who think they have created a guanxi network in China are usually deluding themselves.

Connections with local government officials are short-term and can be abruptly terminated. Government officials in China are regularly moved from office to office and from region to region. As a result, any connection you build with a local government official is unlikely to be long-term.

It is common to negotiate a project for several years and then learn that the official in charge has been transferred to a new post. If the project is not in compliance with the law, the replacement government officials often will refuse to sign the documents that have already been negotiated. Even worse, we have seen replacement government officials shut down previously approved and already started projects. If your project depends on the protection of a single individual, you need to be asking what will happen if that person dies, is demoted, or prosecuted for corruption.

A project based on guanxi gives too much power to the Chinese side of the deal. In many cases, the provider of guanxi will use the fact that the project is not in compliance with the law to ask for additional benefits. If the foreign investor seeks help from a lawyer, the lawyer can do little since the project itself is either illegal or poorly documented.

This post has already drawn nearly 100 likes and, more importantly, 46 comments, most of which agree (many vehemently) with the post’s thesis. I urge everyone to go read that post and provide your coments either here or there. Guanxi is a controversial topic and I am of the view that we all benefit by talking about it openly. I urge all of you to go read it.

If you like my guanxi post or if you like this blog, or even if you just have an interest in China (which I am guessing that you do simply because you are here) please join our China Law Blog Group on Linkedin while you are there. We are nearing 10,000 members and I really want to hit that magical number by the end of the year! What separates our China Law Blog Group from the other Linkedin Groups are the following:

• Great members. Of course.
• Great discussions. Of course.
• No spam. This is key. We moderate everything and we do so to prevent wasting your time!

We’ll see you there.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.