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Culture Doing Business with China and the Chinese chinainsight.info culture April 2015 / PAGE 5 Doing business with China and the Chinese people: a conversation on cultural challenges, part 4 By Chang Wang and Joe Pearman, contributors Editor’s note: This is the continuation of the six-part conversation series on doing business with mainland China (excluding Hong Kong, Macau and Taiwan) and the Han Chinese living within mainland China. It describes some of the ins and outs of interacting with Chinese individuals or firms in the contexts of cross-border communications and negotiations. Through this conversation, the authors hope to help the business community become aware of the miscommunication that stems from the “parallel universes” the American and the Chinese inhabit, to expose the hidden rationales underscoring the official narratives of Chinese history, and to reveal cultural and linguistic misunderstandings that frequently occur during the process of finding “common ground.” Last month’s “Hidden Rules?” illustrated the workings of a “shadow code.” This month’s conversation on guanxi will clarify the meaning of the term; and how foreigners often miss the subtleties involved. Watch for the continuation of the series in the next two issues where the authors will discuss ti-yong, and additional resources that will help you gain a greater understanding of China and the Chinese way. “Guanxi, 關係” by the same standard as children. Wang: Moving on to another facet Pearman: It strikes me that there of “hidden rules,” you may have heard could be another facet to the persecution of the case of GlaxoSmithKline. GSK, of GSK. I remember reading that back as it’s commonly called, is a British when Mexico was run as a one-party pharmaceutical company. Its China state, drug trafficking was much less branch is now facing a serious problem. violent than it is today. Drug traffickers In order to boost revenues, some of their would simply pay their bribes to an senior managers in China engaged in official and move their products to the some questionable practices, including U.S.A.; no muss, no fuss. But every so bribing government officials who often, the government would arrest a regulate the healthcare industry, paying major drug trafficker. It wasn’t because kickbacks to doctors for prescribing they forgot to pay or because they’d GSK drugs, and arranging vacations for gotten rebellious. It was just to show doctors and officials. that they could. In other words, it was Pearman: I take it there’s more to a reminder that the government, not the this story than a corrupt branch of big traffickers, or in this case, GSK, held the pharma getting their just desserts? upper hand in the relationship. Wang: Well, GSK’s China team Wang: Precisely: It was just to show An illustration produced by Reuters “Connected China” shows extensive networks of Chinese leaders made an interesting argument. that they could. And the most amusing According to them, they were simply thing is every time a scandal came out, finding a job is never that difficult. apparent to outsiders: playing the game according to Chinese any time a high official got busted, you Pearman: I’m reminded of the 1) Guanxi cannot be transferred. rules. Every pharmaceutical company will hear the propaganda machine praise “legacy” programs at the Ivy League 2) Guanxi must be understood within in China bribes doctors and officials. the authority and assure the people that schools. If you had an ancestor who the context of a strictly hierarchal and It’s not talked about, but an absolute this just shows how determined the went to Harvard, Princeton or Yale, you somewhat opaque system, and, prerequisite for doing business: yet government is on anti-corruption. don’t have to be nearly as smart as the 3) Guanxi is a double-edged sword. another “hidden rule.” In fact, GSK Pearman: This is kind of insulting. rest of the applicants to get in. When I say guanxi cannot be was less open about it than most Chinese They underestimate the intelligence of I understand those sort of connections transferred, I mean it in the following firms, who openly hand over cash to the people. play a major role in Chinese society, too. way. Suppose you make a contact in doctors. Wang: You may also have heard that Would you agree? the Chinese business community, and And I’d argue that GSK is less the JP Morgan Chase case is in some hot Wang: I agree wholeheartedly. this contact introduces you to a Chinese morally reprehensible than a lot of water right now. Apparently, they hired The system you just alluded to is official. Now, in the Western sense of the Chinese companies for another several Chinese nationals as full-time known as “guanxi,” and it’s one of the networking, you might assume that you reason: their drugs actually work. employees and consultants. Turned out most misunderstood aspects of doing can approach this official for help in the Many Chinese companies behave that many of them are members of the business with China. There was a future. This is not true in China. Any like the villain in “The Third Man,” “red nobility,” or the princelings, and book titled “Guanxi” about Microsoft’s contact with this official needs to be selling defective drugs that don’t help their positions were merely sinecures. operations in China, and a handful of handled through your original contact or actively harm the people to which JP Morgan is now under investigation business books have been written that in the business community. Many they’re administered. by the U.S. government for violating the mention guanxi, but very few of them businesspeople assume they can build Pearman: This begs the question: Foreign Corrupt Practices Act (FCPA). ever understand the true meaning of guanxi with people they’ve just met. why did the government single out GSK Pearman: For those readers who the term. The reality is that the links of guanxi to punish? If they were just playing the may not be familiar with the term, the At its basis, guanxi is about are only established over years, if ever, game, and behaving better than most, “red nobility” consists of the families of connections. The problem of Western and by trying to force them, you will why did they deserve punishment? the oldest Communist Party leaders: the thinking on this issue is that when alienate everyone. Wang: Closely entwined with descendants of those who marched with they hear “connections,” they think I’d like to preface my second point “hidden rules” is something called Mao. Since the arrival of capitalism to “networking,” and since they know by stating that there is not a single the “double standard.” Officials feel China, I know that the red nobility has everything about networking, they unified guanxi “system” in China. It’s perfectly entitled to both engage in leveraged its status to become extremely assume they understand guanxi. In not possible to simply start at the bottom corruption and prosecute people for rich. The “princelings” are a specific fact, if you replace “gaunxi” with and work your way to the top. There are being corrupt. In a way, this ties back subset of individuals em - the lineal “networking,” you would’ve lost thousands, if not millions, of different to the presumed benevolence of “parent descendants of the original leaders. “guanxi.” circles of connections. Some of them official.” A “parent official” may choose Many of them are seen as spoiled brats, There are three key features of overlap, but many do not. to let a citizen do something in return for enjoying the vast benefits their position guanxi that I’d like to address. But Pearman: So, for instance, could a bribe, or they make take the bribe and brings without providing anything in first, a definition. “Guanxi” describes you say that a migrant worker has no not help the citizen or even arrest them. return. the basic dynamic in personalized idea how the factory bosses make the But imply that they did anything wrong Wang: And so they get no-show networks of influence, and is a central connections that enable them to get and you’d get a blank stare. After all, positions so that JP Morgan can operate idea in Chinese society. There are three permits and supplies, and the factory they’re a parent. Parents can’t be judged in China. If you have the right ancestors, key features about guanxi, which are not continues on page 7 chinainsight.info history April 2015 / PAGE 7 Doing The Rise of Cixi business By Pat Welsh, contributor continued from page 5 were to be entrusted ruled on behalf of the young Tongzhi bosses in turn have no idea where or to his regent, Su Shun, Emperor. Despite there being no precedent and seven regents of allowing the empresses to play such a how the connections are made that bring the emperor’s retinue. political role “behind the screen,” the two multinational businesses into China? Su Shun also shifted empresses amassed considerable power. Wang: Yes, precisely. Guanxi tends the authority of the They accomplished this through a series of to be divided by hierarchy. And even if newly reestablished memorials to the throne on Nov. 8, 1861, you’ve gained access to a certain group, Grand Council (軍 advocating that the two empresses serve you need to understand the hierarchy 機處) to himself as regents to the young emperor. Prince within that group. and the seven other Gong, a supporter of the two empresses, For instance, I once witnessed the regents. Nonetheless, was named as chief political advisor.
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