By positioning Guanxi (the interpersonal relationships) to such an important level, equivalent to written contracts, Chinese culture is straining our capacity to appreciate correctly the situations encountered during internal audits.

Beyond a long lasting culture, Guanxi is very useful in China. The creation of the constitution of the People ‘s Republic of China has been done only in 1982. The legal framework is therefore quite new, and many companies still do not have legal corporate service. There is a very long tradition of disputes resolutions settled by direct negotiation. Thus, in this context , the personal relationship of trust between the companies senior management is essential.

When it comes to managing a contractual dispute, Chinese companies will much less use the judicial system than in the western countries. It does not have comparable degree of independence to the government or senior management interpersonal relations. The parties’ willingness to cooperate will be decisive.

Nevertheless the situation is changing rapidly in China. Large companies are strongly pushing copyright and try to protect their interests. The legal framework is rapidly developing.

Important decisions can rely on Guanxi

Unlike in western countries, contracts are not everything. Some important decisions can be taken on the basis of unwritten agreements or on particularly simple ones. This can occur, for example in the case of unique projects of their kind in which the cost can not be known precisely in advance. The signing of letters of intent, having indeed a limited legal scope, can have a major impact in the collaboration or development of a project.

The written agreement is not as robust in China as in Western countries

In China, a contrat will relate to the time and in the context where it was signed, the outcome (partial or total) of a negotiation. If the context is changing, such as the the balance of the relationship between the parties, the contract will be potentially considered obsolete.

Within the company operations, the measurement of individual performance itself is struck by the importance of the relationship

Thus it is interesting to note that the management evaluation of a subordinate are to be largely influenced by the loyalty to the manager, before considering the performance.

Interpersonal relationships in China challenge our habits and Western judgments.

For example it is even more common than in western companies to fostering the recruitment of family members. In fact, unlike western culture, the Chinese see it as an advantage. A family member already involved in a company wil strongly imply to honor the image of him who facilitated the hiring. Even in the sphere of family life the cash donations from parents to school teachers are frequent; they are however not necessarily fraudulent.

However corruption in China’s reputation is not usurped. For instance some restaurants or travel agencies may propose services through expensive “business menu”. It will include a luxurious gift to the guests (watches, jewelry, …) that does not appear clearly on the bill. Invoices may be cut in small amounts to remain under the supervision of internal controls threshold …

If you liked this blog, please leave a comment. I plan to consolidate all posts is a white paper: just let me know if you wish to receive it.


Please enter your comment!
Please enter your name here