As mentioned earlier, loyalty to friends is a key tenet of Confucius and, to some, the foremost component of Confucian values. The social norm is that friends support each other in times of need, regardless of monetary costs and that friends are expected to extend favors to their friends when asked.
Understanding the friend-to-friend relationship is key to doing business in China. Although business relationships can and do exist without friendship at the core, relationships based on friendships are those that thrive and grow. These relationships, known as guanxi in Chinese, explain why some foreign companies might not succeed in China even though they may offer better service and quality than a Chinese competitor.
Friendship takes on a particularly important role in a society like China’s where the legal framework is weak and is not trusted by many. When the legal system cannot be trusted to enforce a contract, for example, the trust between friends can become more important than a business contract. The rule of thumb in Chinese business is that those outside the circle of friends are not to be trusted, a rule reinforced by the fraud that pervades in many deals done outside the circle.
In practice, this means that those desiring a business relationship must first establish a friendship or trust relationship. If a businessman wants to meet a potential customer, partner or government official, the best method is often to find a middle man, someone in the target’s circle of acquaintance to help with introductions. This middle man could come from the target’s family, school alumni or army unit in the case of an ex-soldier. Typically, the middle man would set up a dinner with the target in a respected restaurant, where a private room would be booked. At the initial meeting the middle man would be expected to do most of the talking, describing the attributes of the two parties to each other. After one or two such dinners, the two parties would then move on to less public surroundings where business might begin to be conducted.
The middle men themselves have two motivations for helping out. The first is to accumulate favors. A favor is not a hard currency in Chinese society. You cannot cash in favors in exchange for a car. But a favor is highly liquid. If you provide a friend or an acquaintance with a favor today, he or she would be expected to return the favor when asked. Most Chinese people do honor this reciprocal obligation for favors. It is similar to a debt, that one has a moral obligation to pay back. Not everyone complies with this rule, but one would find life more difficult with a reputation of not returning favors.
The second reason is related to face. Face is valuable for many Chinese people, especially those who are somewhat vain. Having face means that you are considered to be smart, powerful, competent and deserving of respect. If you are well connected and can invite important people to your dinner, you have face. By having an important person accept a dinner invitation, the middleman can boast in the future that he introduced Mr. Big to his friend, implying to the listener that it is worth having the middleman as a true friend.
In China, certainly more so than in the West, it is not what you know but who you know. Social engagements are an important element of a business career, with dinners and banquets organized by schoolmates or friends a vital part of any businessman’s life. These events expand a businessman’s circle of friends, combining his social and business life in the pursuit of ever-more guanxi.