# Guanxi: What it is, History, How it Works, FAQ

> **Definition**
>
> Guanxi is a Chinese term for the business networks and relationships used to facilitate deals and create opportunities, emphasizing trust and mutual obligations.

## What Is Guanxi?

_Guanxi,_ pronounced _gwan' CH_ē, is a Chinese term for relationships. It commonly refers to the networks or connections used in business to open doors for new business and facilitate deals.

The term refers not just to the existence of relationships but to their nature involving personal trust and a strong relationship. It can also create moral obligations and require the exchanging of favors. A person who has a great deal of _guanxi_ will be better positioned to generate business than someone who lacks it.

_Guanxi_ is closely intertwined with the Confucian philosophy that has shaped many Asian cultures. It holds that the self extends to family, friends, and society to create a harmonious community. _Guanxi_ implies an obligation that one has to another. The belief in China is that the wheels of business are lubricated with _guanxi_.

### Key Takeaways

*   _Guanxi_ is a Chinese term that describes an individual's ability to connect or network for productive business purposes.
*   The Chinese symbols for _guanxi_ essentially mean gateway to relationships.
*   _Guanxi_ is perhaps best encapsulated by the axiom, "It's not what you know but who you know."
*   Abusing _guanxi_ through aggressive or dishonest business practices can jeopardize one's reputation and present opportunities for corruption.

Merely saying that _guanxi_ connects to Confucian philosophy doesn't complete the explanation of the term. Confucian thought dates back more than 2,000 years and it continues to be highly influential in China. Given the importance of Confucian thought, it should be no surprise that its stress on relationships and duty to others should be reflected in the notion of _guanxi_ in Chinese business relationships.

Business comes before personal matters in the Western business model and the two don't often combine. They're closely joined in _guanxi_, however. The original Chinese symbols relate to the concept of a gateway to a relationship and this is a relatively accurate way to think of _guanxi_. The exercise of _guanxi_ leads to the connections through which business can happen.  

> **Important**
>
> The exchange of favors between people in a network isn't necessarily the same as guanxi.

## How Guanxi Works

_Guanxi_ is perhaps best understood by the old axiom, "It's not what you know but who you know that's important." _Guanxi_ comes in many forms in the West: alumni networks, fraternity or sorority memberships, past and present places of employment, clubs, houses of worship, families, and friends.

_Guanxi_ is similar in social sciences to some concepts understood in network theory such as the idea of information or connection brokerage by well-positioned individuals in a [social network](https://www.investopedia.com/terms/n/networking.asp) or their [social capital](https://www.investopedia.com/terms/s/socialcapital.asp).

Much of our lives today depends on networking, social networks like Facebook, and business networks like LinkedIn. We're all building these intertwined networks of connections to improve our business lives every day.

## Understanding Guanxi

The odds of gaining access to a business opportunity and then winning that opportunity are higher when you work your connections. You'll naturally try to use this contact to your advantage if you're bidding for a contract in competition with others and you know someone on the other side of the deal.

You'll undoubtedly make a few phone calls to make sure lawmakers remain at least neutral and regulators stay off your back if you're a Wall Street executive with _guanxi_ in Washington. You'll tap into your _guanxi_ at the golf club to find a quicker route to your objective if you're a CEO who wants to make an [acquisition](https://www.investopedia.com/terms/a/acquisition.asp).

## Special Considerations

Using your _guanxi_ can be innocuous or hazardous depending on where you do business and how aggressive you are. Using connections may be commonly accepted as simply conducting business affairs in the West but you must still be careful of conflicts of interest whether they're governed by law or a company's code of ethics. You can face severe consequences if your networking abroad violates the [Foreign Corrupt Practices Act (FCPA)](https://www.investopedia.com/terms/f/foreign-corrupt-practices-act.asp).

Calling upon connections in China where the art of _guanxi_ occurs in high form is the norm to get things moving. One can go too far even there, however. Business leaders with _guanxi_ in the government have engaged in illegal activity with dire consequences. Abusing _guanxi_ is a terrible idea virtually everywhere.

## What Confucian Beliefs Are Key to Guanxi?

Confucianism is founded mainly on the five relationships and their importance to the individual. It looks to create social harmony based on these intertwined harmonious relationships and mutual courtesy in a well-ordered world.

## Is Guanxi the Same As Networking?

Networking and _guanxi_ have essentially the same linguistic meaning but networking in Western business is a concept that lies relatively lightly in our culture. In contrast, _guanxi_ sits deeply in China's language and culture, forming the basis for virtually all social relationships.

## How Do You Build Guanxi in China?

Building _guanxi_ is usually a long-term process. You can begin by gaining knowledge about China's history and culture. Seeking formal introductions to individuals with whom you want to do business is also helpful to start relationships especially if you make a conscious effort to create trust and social contact. Gifts, entertainment, and especially dinners are traditional Chinese methods of building social capital.

## What Are the Downsides to Guanxi?

_Guanxi_ can cause cronyism, nepotism, and corruption when it's taken to extremes because it's so dependent on relationships. Illegal acts occasionally result from misapplied _guanxi_ and _guanxi_ often ignores the qualification or merit of the individual who's favored. _Guanxi_ can lead to a less qualified person obtaining a position or deal, resulting in a less productive situation for the business.

## The Bottom Line

Understanding _guanxi_ is essential to doing business successfully in China. Only by building social and business networks and contacts can a Western person fit well enough into the _guanxi_ system to succeed.

> **Article Sources**
>
> 1.  Program on Negotiation, Harvard Law School. "[The Importance of Relationship Building in China](https://www.pon.harvard.edu/daily/international-negotiation-daily/negotiation-in-china-the-importance-of-guanxi/)."
>     
> 2.  Nolan, Jane. "[Guanxi](https://www.oxfordbibliographies.com/display/document/obo-9780199920082/obo-9780199920082-0115.xml)." _Oxford Bibliographies_, July 2015.
>     
> 3.  China Mike. "[Chinese “Guanxi” – The Oil That Keeps China Running](https://www.china-mike.com/chinese-culture/guanxi/)."
>     
> 4.  The Stanford Encyclopedia of Philosophy. "[Modern Confucianism](https://plato.stanford.edu/entries/confucianism-modern/)."
>     
> 5.  The Chairman's Bao. "[Guanxi in China: A Little Understood Concept in the West](https://www.thechairmansbao.com/guanxi-in-china-a-little-understood-concept-in-the-west/)."
>     
> 6.  U.S. Department of Justice. "[Foreign Corrupt Practices Act](https://www.justice.gov/criminal-fraud/foreign-corrupt-practices-act)."
>     
> 7.  Facts and Details. "[Confucian Beliefs](https://factsanddetails.com/china/cat3/sub9/item88.html#chapter-7)." Chapter 7: Confucian Beliefs About Social Relationships.