The art of guanxi

Relationship building, or guanxi, is key to doing business in China. But as Rio Tinto's Stern Hu faces bribery allegations it's worth considering what constitutes this essential part of doing business.

China has revealed that it will be charging Australian citizen and the head of Rio Tinto's Chinese iron ore operation Stern Hu with bribery. Bribery is a very interesting concept in China.

First we must understand Chinese culture when it comes to relationship building, or guanxi (pronounced gwan-shee). Having guanxi is utterly essential to doing business in China. There are many definitions of guanxi, but it would best be described as 'connections' and 'relationships'.

Building relationships in China is a time-consuming process and not easy, especially as a foreigner. But once you do build your guanxi, it comes with a level of loyalty and camaraderie that will support you in tough times.

Decades ago, it was commonplace, almost expected, that officials took bribes. But in recent years China has made a strong push towards wiping out bribery and related corruption. That doesn't mean it doesn't happen, it just means that doing it can get you into a whole heap of trouble. There have been numerous executions in China for these sorts of white collar crimes. Just four days ago, a higher court in east China's Shandong Province upheld the death penalty for the former chief of the Capital Airports Holding Company for bribery and embezzlement.

But there can be a very fine line between bribery and gift giving. In Hong Kong, for instance, some of the gift giving reaches truly epic proportions, with thousand-dollar wines, gold statuettes or imported food like truffles being proffered in the name of bridge-building.

Charging Stern Hu with bribery certainly sends a strong message to expats doing business in China, but it also puts China in an interesting strategic position.

Suspicions are now growing among pundits that once China submits the charges, it will force Rio to give it access to commercial-in-confidence information, in the midst of what appears to be the most tense iron ore negotiations in memory, which Rio Tinto is leading. It's hard to imagine the tension and stress going on at Rio Tinto headquarters in London as Tom Albanese considers this prospect.

Australian consular officials have still not had access to Stern Hu, but were expected to visit him on Friday July 10, 2009.

Click here to read an interview with academic and China expert Mike Berrell, The art of doing business (and avoiding trouble) in China.