You may have heard or have the impression that, while there are laws and regulations in China, many of them are intended to be bent or circumvented, and certainly never followed to the letter.

One of the many implications of this type of commercial environment is the difference between the Chinese and Western concepts of a contractual arrangement. While a Westerner expects a contract to be a binding document, both now and into the future until one or both parties seek to alter or conclude it, to the Chinese a contract is more like a snapshot of a set of circumstances that happened to exist at the time it was signed.

The concept of ‘guanxi’ (connections) is also key to understanding the differences between the roles of law and goodwill in China. Connections are of the utmost importance, and people who have them are often the only ones who get anything done, at least in a timely and/or productive fashion.

Keep in mind, however, that these connections are usually built up arduously and over long periods of time. Chinese relationships, particularly in business, often start from a position of mutual mistrust, and genuine trust develops slowly, and often painfully, from that point. This is the opposite of the Western concept of business relationships that commence based on mutual trust and then live or die on the basis of the subsequent actions of both parties.

In any event, regardless of the closeness of guanxi that may eventuate between you and your Chinese counterparts, discussion of financial matters will always be conducted strictly in one’s own self-interest. No matter how much your Chinese partner goes on about your ‘friendship,’ they would never expect you to do anything less give your own interests first priority where business and financial matters are concerned. Therefore, an established relationship should not stand in the way of you pointing out inconsistencies, underpayments, etc. in your business dealings, although the more tact you use in doing so the better.