Is “Guanxi” still needed in China?

Guanxi in Chinese means "relationships" and most foreigners and Chinese alike will assure you of the need to have good Guanxi to get business done in China. While I doubt anyone who has done business or lived in China will argue that relationships aren't necessary here, Shawn He Yuxun, from MeetChinaBiz offers some excellent insight in his blog post into the history of this infamous word Guanxi, its place within China historically and what place Guanxi may have in the future.

In his post, Shawn He Yuxun discusses the history of Guanxi as it relates to requiring personal favors to achieve economic means during a time when China's economy was completely planned.

Prior to the 1980s, every aspect of China's economic life was planned, controlled, directed and operated by the government. No private ownership of any property or asset, much less profiteering for an individual or group, was allowed. The government would allocate everyone a pre-defined slice of the “big pie“ (incidentally the equivalent terminology in China — where rice rules the dining table — was “Da Guo Fan“ (da-gore-fun), which means “rice in a big wok“). If one wanted any more than what was allocated to him/her, he/she would have to circumvent the system and rely on another individual in charge of a particular function in that “allocation chain” to do him/her a special favor.

As China began opening up in the 70's, there was no effective system in place to foster individual economic relationships outside of the planned economy and this Guanxi system.

So by and large throughout the 80's and most of the 90's, having Guanxi this “ultra-relationship” or “super-connection“ ALONE had proven to be a sufficient, and in many cases also necessary, condition to get something done, regardless of the fundamentals. With Guanxi, a completely unqualified and incompetent person could land a very important job and/or position. Also with Guanxi, a company with no track record whatsoever could be awarded massive contracts. You get the point…

However, Shawn He Yuxun argues that as certain industries become more privatized, and with a history of economic relationships built outside of the Guanxi system, that Guanxi itself is less important. "Business is business" just like in the west.

As the economy becomes more and more marketized / privatized and competitive, the value and effectiveness of the Guanxi system has also greatly deterioriated. In industries that have been substantially deregulated / privatized or where there is much competition, business is business, and Guanxi has been neutralized / marginalized to resemble just what relationships and connections are like in the Western world.

So what do you think? Is Guanxi still required in China? Is the Guanxi of today different from the Guanxi of yesterday? Let's hear from our readers about your experiences!