January 23, 2012 at 9:25 AM

Kinship ties in business relationships are not unique to China.  In The Yin and Yang of Kinship and Business, Alex Stewart and Michael Hitt note kinship as an organizational element of business concerns is a sustained global phenomenon, not a passing developmental phase. But in China the enduring Confucian influence of kinship relations as a means to organize and strengthen social behavior rather than doing so through external legal norms have such deep roots that they have withstood the Maoist and earlier Legalist efforts to disrupt and replace kinship with ideology and state dictates as the binding force of society.  Clan ties and the relationship obligations or guanxi that are the glue of social behavior continue to have a profound effect on business activities and relationships. This behavior has developed over centuries within localities, so geography is an important element as Tobler’s first law of geography describes.

Failure to understand the fundamental importance of these relationships in Chinese social behavior leads inevitably to project failure.  The obligations within the social network act as attractive forces maintaining the relationships and withstanding assaults from external factors. The social network formed on the basis of kinship and guanxi has its own internal compass that must be understood in order to achieve successful outcomes.  For historical reasons the social network is an autonomous unit within the whole of society. It is a form of nodal governance. At its best it allows the survival of groups through tempestuous times of dislocation and uncertainty.  At its worst in can lead to incidents like the Chinese milk scandal.

Guanxi and Place in Societal Development

Any primer on doing business in China will lead off with a description of the importance of guanxi.  The literal translation of the term is relationships, but the meaning is the set of obligations that social relationships incur upon members of a group.  In the absence of an enduring rule of law and a system enforcing accountability for violating breeches of law, the Chinese social system developed on the basis of relationships that impose reciprocal obligations on the active members of relationship groups.

Avner Grief and Guido Tabellini explain that Chinese imperial regimes fostered the nodal governance of clans to collect taxes, train members for the civil service exams, provide social welfare, and maintain social order. In addition, the Chinese organized long-distance trade based on “clan and regional merchant groups that relied on moral obligations and reputation among specific individuals related by kinship or place of residence.” This reliance on internal clan structures reduced the need for an external legal structure to govern social relationships. Small cities based on kinship groups were the order until the modern era in China. To this day, as can be seen in the mass migration to rural areas during the Spring Festival, many city dwellers see themselves as temporary residents, maintaining their links to rural kinship groups.

Grief and Tabellini, Francis Fukuyama, and others maintain that China developed a strong state but did not develop the rule-of-law. Imperial China and the People’s Republic of China function as authoritarian states with legitimacy bestowed by moral guidance based on the “mandate of heaven,” a somewhat arbitrary principle defined by the conduct of the ruler and the willingness of the populace to countenance such conduct.  Moral principles are defined by Confucianism, Communist doctrine, or a blend of both and interpreted by the imperial court, in the past, or the Chinese Communist Party Politburo, with accountability determined by whether the ruling group maintains control.  When there are no external rules accepted and adhered to by all – including the regime in power – nodal governance of the sort developed through the clan system – the mutual obligations of guanxi – are an effective force for stability against what can be arbitrary decisions by the ruling elite.

China is a described as a shame culture rather than a guilt culture, the order prevalent in the West.  In a shame culture the opinions of others maintain social order rather than individually internalized societal norms. The status of individuals is defined by the status and number of an individual’s relationships. Therefore building a network of relationships is the key to success. 

The reciprocal obligations of guanxi are the social capital binding together the guanxi wang or the interconnected network of relationship holders. Historically the network was based on clan and community (native place) ties. Urbanization and state intervention disrupted these affiliations and substituted other mutual common interests or relationships as the basis for establishing guanxi. Nevertheless, clan and community continue to play an important role in developing and maintaining social networks in China. And these relationships are the basis for business undertakings in China. According to Lee Simmons and James Munch it is the reciprocal obligations of guanxi rather than identification with the goals of an individual’s firm that sustain business relationships.  And the internal mutual obligations of the network can supersede corrupt or dilatory practices as the relationship is more important than the transaction.

Place and Family Persevere

Despite the efforts of Maoism and the Great Proletarian Cultural Revolution to suppress traditional social relationships, the family and place of origin ties as organizing social forces persist and are resuming importance. Newsweek reporters Melinda Liu and Sarah Schafer in their article China’s Family Ties found that “family ties are taking over now that the central government has relaxed its grip.” Symbols of kinship groups such as family genealogies (jiapu) and clan temples (kongsi or gongsi – also the term used for “company”) that had been objects of destruction during the Cultural Revolution were being restored and returned to places of prominence.

James L. Watson, the distinguished Harvard anthropologist, and others note that Chinese clan ties are strongest in southeast China, but are existent throughout the country.  Watson distinguishes between lineages, which have demonstrable kinship ties, and clans, which have putative kinship ties. But recent research indicates there are 4100 “meaningful” surnames throughout China. This does not mean all those with a common surname are related as some adopt surnames as a means of convenience or social aggrandizement. Generally, though, there is an acknowledged affiliation whether it be through blood or for commercial and political advantage. And the size and influence of these affinity groups are growing, not waning as Chinese recognize not only the historical roots of this aspect of social organization, but also the need for such mediating entities in an increasingly complex society with few other outlets for associating to share commodities such as information and social capital.

With a relative paucity of surnames for a population of 1.3 billion, some other factor must be an organizing principle for the clan associations and guanxiwang.  That factor would be locality – town, city, or province of origin and place of residence.  Students of guanxi have long noted that schooling and locality commonalities are among the organizing principles of guanxi networks.

Understanding the Network

Studies and investigations of the Chinese milk scandal note that the company behind the scandal – Sanlu – was originally a local dairy cooperative in Hebei Province.  Although the provincial government had a share in company ownership, majority ownership rested in the hands of company management and employees. Critics -- notably Song Meiying of Xian’s Southwestern Polytechnical University -- suggest that the scandal is evidence of the moral turpitude of company managers. Considering the circumstances – after a New Zealand cooperative bought into Sanlu the increased demand for dairy products expanded beyond the company’s ability to fulfill orders – another way of looking at the situation is that the guanxiwang that encompassed the company, its producers and distributers turned to adulteration of the milk in order to protect the reputation and standing of the company.

Yan Lianke, in the allegorical novel Dream of Ding Village, reflects on the nature of blood ties and commercial relationships in rural China and how one can undermine the other.  His novel ends with the protagonist – the clan elder – exacting revenge on the disrupter of social order – his own son – thereby opening the path to a mystical renewal of the rural society. The implication is that the natural order of Chinese society resumes its place of prominence despite the undermining materialism of modern society.

Finally in politics, the recent example of the rise of Wukan village against local authorities is another incident worthy of consideration in the context of traditional social structures and their return to prominence.  Briefly, Wukan’s villagers rose up in protest against local officials’ efforts to expropriate land and package it for private development. When demonstrations against this action occurred, some local residents were designated to mediate with the government on the issue. When one of those designees died in detention, the villagers ousted the officials and closed the village to outside forces.  The protest subsided when provincial officials met the villagers and promised to implement some of the changes that had been demanded.  As the Canadian researcher Evelyn Chan notes, the details of the incident and the eventual outcome are less important than the backdrop against which it took place: “mass incidents in China have become ubiquitous.”  In the absence of organized alternatives to Communist Party and Chinese Government rule, Chan posits that the Internet, microblogs, and social media are the organizing force behind such demonstrations.  An alternative way of looking at these developments is to see the resumption of traditional forms of social organization, such as clans and guanxi networks, as the organizing force behind this political restiveness.

Understanding the network is an important aspect of successful project management in China.  It is not enough to know that guanxi and personal relationships are essential aspects of Chinese business relationships.  It is also important to have an understanding of who may be in the network, how the network is interrelated, and the locus of the network.  This fundamental aspect of Chinese society can be seen to this day in business, literature, and politics.

Clan_Ties_Guanxi_and_Project_Management_in_China.pdf

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