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Balancing guanxi ledger pays dividends


By Pat English, Executive Director, New Zealand China Council:

We read about it or see it in the news every other week. But very few of us can pronounce it, let alone put a name to it. Even fewer of us genuinely understand it.

I'm talking about guanxi, one of the most important of Chinese relationship customs. Simply put, guanxi is about building a "mutually beneficial relationship" that can be used for business as well as personal purposes.

An easy way to understand guanxi is to think of it as a ledger. You invest into a relationship with your time, friendship, networks, expertise, hospitality or "face" and over time, these contributions into the relationship build up as positive equity.

But it's a doubled-edged sword, as much about responsibility to the relationship as benefit from it.

With China our number one market for merchandise trade and overseas students and second for inbound tourists, it's probably time New Zealand got a better grip on guanxi.

Over the past year, New Zealand's guanxi ledger has been truly tested, but fortunately we'd built sufficient equity through our longstanding, consistent and bipartisan approach to the China relationship. We were able to draw on this equity and the relationship remained strong.

The flipside is that if you're not making contributions to your guanxi ledger or you overdraw, you can end up in the red. When conducting business in China, its common to be picked up at the airport, introduced to your partner's company and contacts, taken out for amazing lunches, shown the sights of the city and more. Already, your ledger is looking decidedly unbalanced.

It's a fundamentally different approach to business relationships than New Zealanders are used to. We instinctively seek a level playing field, as illustrated by the old western proverb "neither a borrower nor a lender be".

In the Chinese context, the proverb used is: "The hand that takes the food is owned by the hand that put the food on the table."

And as we've seen recently in New Zealand, accepting and returning favours can have extremely negative consequences for those on either side of the ledger.

Our principle when dealing with China should be to "eat the fish and spit out the bones", adapting Chinese customs, or in this case guanxi, where it fits with our culture and customs. So how do we do this?

First, we need a sharper understanding and appreciation of Chinese business customs. What does the action or message really mean? What happens if I refuse a gift? What you eat, with whom and for how long contains a message, but you have to be able to understand the code.

Second, we need to plan ahead to appropriately reciprocate hosting dinners, gift giving or visits to each other's countries. This means thinking through the issues or getting advice well before, so that you're not caught out by a host who pays for everything, or provides things which are disproportionate to the relationship.

Finally, we mustn't forget that gifts and other gestures can simply be acts of generosity. There are many possible reasons for a banquet, and not all involve reciprocal expectations.

The key to it all is understanding the customs you're dealing with in the Chinese context, the meaning of the actions, the messaging and symbolism and the people themselves.

None of this is easy and it will take time, but getting a better grip on customs such as guanxi will pay dividends as our relationship with China continues to deepen and grow.

This article was first published in the NZ Herald