The Importance of Guanxi to Chinese Civilization

May 23, 2011

In lieu of a Western style legal system for most of China’s history, Guanxi offered an alternative to foster innovation, develop trust and contribute to trade and commerce for thousands of years.

Sir Robert Hart (1835 – 1911), the godfather of China’s modernization and the main character of my first two historical fiction novels, discovered the importance of Guanxi soon after he left the employ of the British and went to work for the Emperor.

He quickly learned that a “supreme value of loyalty glued together China’s structure of personal relationships.” Source: Entering China’s Service

In addition, Hart wrote in a letter in 1891, “These people (referring to the Chinese) never act too soon, and, so far, I have not known of their losing anything by being late. To glide naturally, easily and seasonably into the safe position sequence as circumstances make, is probably a sounder though less heroic policy for a state than to be forever experimenting—”

To translate, it takes time to develop a relationship/friendship/trust (Guanxi) that all invovled may benefit from.


Warning: This is a Promotional Video. However, it offers a perspective on Guanxi worth seeing.

However, I did not learn about Guanxi from Robert Hart. I first learned of it from the China Law Blog, which quoted the Silicon Hutong Blog.

Then I did more research and watched a few videos on the subject. I learned that Guanxi is one of those complexities of Chinese
culture that does not translate easily.

There are several elements and layers to Guanxi. First, Guanxi is based on a Confucian hierarchy of familial relationships, long-term friendships, classmates, and schoolmates and to those no stranger – Chinese or foreign – will ever have access. Source: Silicon Hutong

Guanxi developed over millennia because China did not have a stable and effective legal system as it developed in the West.

In fact, the legal system in China today is relatively new and made its appearance after the 1982 Chinese Constitution became the law of the land.

Since 1982, there have been several amendments to the Constitution as China adapts its evolving legal system, which was modeled after the German legal system.

In time, this Western influenced legal system may replace Guanxi since business law modeled on Western law with Chinese characteristic has developed faster than civil law.

There are a several opinions about Guanxi. I learned that Guanxi is similar to a gate that opens to a network of human beings but it isn’t that simple.

Maintaining Guanxi is different than how relationships are maintained in other cultures. The embedded videos with this post offer a more detailed explanation.

The China Law Blog copied the post from the Silicon Hutong Blog. The post on the China Law Blog had more than twenty comments and it was a lively discussion worth reading if you are interested in discovering more.

Learn more of Chinese Culture from The Mental and Emotional State of “Face”

______________

Lloyd Lofthouse is the award-winning author of the concubine saga, My Splendid Concubine & Our Hart. When you love a Chinese woman, you marry her family and culture too.

To subscribe to iLook China, use the “Subscribe” button at the top of the screen in the menu bar.

This revised and edited post first appeared here on October 18, 2010 as Guanxi in China

Leave a Comment » | business, China, Chinese Culture, Confucianism, cultural differences, legal system | Tagged: , , , , , , , , , | Permalink
Posted by Lloyd Lofthouse

Is China Shifting Gears?

May 19, 2011

Is China shifting gears to avoid the Japanese Syndrome, which is what happened to Japan in the 1990s and was known as the Lost Decade? American economist Paul Krugman has described Japan’s Lost Decade as a liquidity trap, in which consumers and firms saved too much overall, causing the economy to slow too much.

In addition, on November 13, 2009, The Economist said, in The Dragon still roars, “Some analysts claim that China today looks ominously like Japan in the late 1980s… Banks’ non-performing loans will surely rise in 2010, and unless the government tightens monetary policy it will store up future problems which could harm economic growth.”

However, on April 10, 2011, Lianting Tu reported for CNBC that China is “Taking a cue from the larger economy, which is looking to make the transition from quantity to quality, China’s four biggest banks have decided to slow down growth and focus instead on better profit margins.”

What Lianting means is China’s banks are not loaning as much money, are making better loans and charging higher interest rates, which boosts profits.

She also writes, “Non-Performing Loans are a Non-Issue” in China.  She says, “For the four major Chinese banks, the average non-performing loan, or NPL, ratio dropped to around 1.1 percent in 2010 from 2 percent in 2009 and is expected to decline further this year, compared with 20 percent in 1990 and around 5 percent only 3 years ago.”

Compared to the United States, China is in good shape. According to the Federal Reserve Bank of St. Louis, total non-performing loans in the US flew from less than 2% in 2007 to almost 6% in 2010—the opposite of China, which has been reducing non-performing loans.

A Chinese friend said most loans get paid off because in China when a loan is made, entire working families cosign, which may be another benefit of a collective culture instead of one based on individualism. In China, mostly everyone in an extended family has to lose jobs and income to default on a loan.

In fact, in the US, bankruptcy cases filed in federal court for the 12-month period ending September 30, 2010 totaled 1,596,355, up 13.9 percent over the same period in 2009.  In 2007, before the 64 trillion dollar global financial crises caused by greed from Goldman Sachs, Wall Street and much of the US banking system, the bankruptcies were about 50% less. Source: Bankruptcy Action.com

Discover Deng Xiaoping’s 20/20 Vision

______________

Lloyd Lofthouse is the award-winning author of the concubine saga, My Splendid Concubine & Our Hart. When you love a Chinese woman, you marry her family and culture too.

To subscribe to iLook China, look for the “Subscribe” button at the top of the screen in the menu bar, click on it then follow directions.

Leave a Comment » | business, capitalism, China, economy | Tagged: , , , , , , | Permalink
Posted by Lloyd Lofthouse

Chicken Little-Henny Penny says, “China’s Bubble is Bursting!”

May 17, 2011

The Chicken Little-Henny Penny story is a fable about a chicken that believes the world is ending. The phrase “The sky is falling!” features prominently in the story and is now a common idiom indicating a hysterical or mistaken belief that disaster is imminent.

Chicken Little’s warnings or predictions of calamity, especially without justification, dates from 1895.

Because of this, the tale has become politicized and one example appeared on ZeroHedge.com when Tyler Durden submitted this post, “Chinese Real Estate Bubble Pops: Beijing Real Estate Prices Plunge 27% In One Month”.

Durden writes, “Prices of new homes in China’s capital plunged 26.7% month-on-month in March, the Beijing News reported Tuesday, citing data from the city’s Housing and Urban-Rural Development Commission.”

Durden says, “IF” the pummeling in the Beijing real estate market shifts to other cities not only is the Chinese tightening regime over, but the SHCOMP (?) in the next few weeks could get very interesting as people understand the world’s biggest marginal bubble has popped.”

“IF” I had a dollar for every time I’ve read a “Sky is Falling” prediction of China’s economy, I’d take my wife out to dinner, shopping at Nordstrom’s and a movie on the weekend.

China’s real estate market only represents about 15% of China’s GDP while in America, that number is more than 70% of GDP, which explains why America is in the cellar with its economy and China is still growing but just slower.

Meanwhile, Tory Capital.com reports “China’s First Quarter 2011 GDP Rises 9.7 Percent,” while Mostly Economics.com compares that to the US annual rate of 3.1%.

A better, possibly more informed comparison between China and America’s economies may be found at Heritage.org where Derek Scissors, Ph.D. writes, “Its (China) raw population means that the PRC will likely pass the U.S. at some point after a resumption of market reform.”

However, Scissors says for that to happen, “The 2012 Communist Party Congress (must) nullify actions by the 2002 Party Congress and restore Deng Xiaoping’s economic model—this would enable roughly two more decades of rapid growth, perhaps in the 7 percent to 8 percent range, then gently decreasing to the 5 percent to 6 percent range over time. China would then surpass the U.S.” as the world’s largest economy.

Back to Durden’s Chicken Little-Henny Penny statement. The drop in “new housing prices” in Beijing may be a response to complaints from the people that prices were out of reach of many. Instead of a bubble bursting, the Party may have let some air out so it would not explode as it did in the US in 2008.

Discover The Fear of Mao Buying the World

______________

Lloyd Lofthouse is the award-winning author of the concubine saga, My Splendid Concubine & Our Hart. When you love a Chinese woman, you marry her family and culture too.

To subscribe to iLook China, look for the “Subscribe” button at the top of the screen in the menu bar, click on it then follow directions.

2 Comments | business, capitalism, China, economy | Tagged: , , , , , , , | Permalink
Posted by Lloyd Lofthouse

The Challenging Chinese Consumer Market

May 16, 2011

When foreign businesses such as Home Depot or Wal-Mart open for business in China, knowing the market and consumer is a good idea.

Most Chinese consumers have a different perspective than most Western shoppers when it comes to spending money. The average Chinese consumer born before 1980 prefers to pay cash and buy the best quality for the lowest price.

There’s also a difference in spending habits between younger Chinese born after 1980. Evidence suggests that younger Chinese have caught the credit card virus and are running up debt similar to the average American consumer.

Bob Schmitz writing for NPR’s Marketplace on Friday, April 8, 2011 says, “Home Depot not a hit in China.”

Schmitz talks to Raymond Chou, the CEO of Home Depot operations in China. When asked about closing five stores, Chou indicated this is not a sign of failure and said, “(Home Depot) has closed stores to focus on China’s lesser-known cities where much of the country’s real estate development is booming.”

One criticism Schmitz writes of is the fact that many of Home Depot’s products are made in China and may be bought for less from Chinese merchants.

However, one Chinese contractor says he shops at Home Depot because “It’s easy to exchange and return goods… and (he) knows the materials (at Home Depot) are safe and not fake.”

Wal-Mart critics may rejoice. According to NPR, Wal-Mart’s goals in China are to purchase a chain of retail stores there.

If this scheme will succeed remains to be seen. Wal-Mart has faced slowing business in the United States, is struggling in Japan and failed in Germany and South Korea.

Wal-Mart’s biggest challenge is to overcome its habit of fighting unions and paying low wages, which forces many workers to rely on local welfare and public-health programs. This isn’t welcome in some markets and is the reason why Wal-Mart left Germany.

For the same reasons, Wal-Mart, which is allergic to unions and paying workers a living wage, is facing a Chinese government that is strengthening worker protections and rights to organize/join labor unions.

Last summer, Wal-Mart was forced to allow its Chinese workers to join a union for the first time.

To understand the Walton family, Bizmarts.com reported, “As Sam Walton explained in his 1992 autobiography, Made in America, he didn’t believe in giving ‘any undeserving stranger a free ride’. Nor did he believe in being generous with company profits.”

Forbes reported that the Walton family was worth about 90 billion dollars or 18 billion each.

Discover how China is Holding a Vital Key to Humanity’s Future

______________

Lloyd Lofthouse is the award-winning author of the concubine saga, My Splendid Concubine & Our Hart. When you love a Chinese woman, you marry her family and culture too.

To subscribe to iLook China, look for the “Subscribe” button at the top of the screen in the menu bar, click it then follow directions.

2 Comments | business, capitalism, China, Chinese middle class, cultural differences, economy | Tagged: , , , , , | Permalink
Posted by Lloyd Lofthouse

Chinese tourists Buying “Made in China” in the US – Part 2/2

May 7, 2011


I’ve been in the Number One Shanghai department store off Nanjing road and seen Chinese consumers taking TV’s from the box to insure they work.

Recently, my father-in-law and his wife were up at four in the morning walking to the Apple Store a forty-minute walk from our Bay Area house.

To buy an iPad 2 in America, they were willing to get up that early and wait in line for several hours until the store opened to buy this new Apple product.

When I asked why not buy the iPad 2 at one of the Official Apple Stores in Beijing, I was told  if you buy something in the US even if made in China, the buyer can be assured of the quality.

There is some truth to that. My father-in-law’s wife arrived with a new camera bought in China.

The camera stopped working the first week she was here so she bought an expensive Sony and loved it because it worked just as promised and kept on working.

It would seem that Chinese manufacturers have a long way to go to earn the trust of the Chinese consumer.

Meanwhile, sixty million Chinese tourists are leaving China annually and buying “Made in China” outside of China then taking those purchases home.

Ironic, isn’t it?

Start with Chinese tourists Buying “Made in China” in the US – Part 1 or discover Chinese Gold from Dead Tibetan Caterpillars.

______________

Lloyd Lofthouse is the award-winning author of the concubine saga, My Splendid Concubine & Our Hart. When you love a Chinese woman, you marry her family and culture too.

If you want to subscribe to iLook China, there is a “Subscribe” button at the top of the screen in the menu bar.

Leave a Comment » | America, business, capitalism, China, Chinese middle class, economy, tourism | Tagged: , , , , | Permalink
Posted by Lloyd Lofthouse

« Previous Entries
Next Entries »