Chinese Guanxi: when contacts are more important than contracts

by | Aug 30, 2017 | Despatch

Although more than one-third of Australia’s entire trade is now with China, in many transactions, contacts are more important than contracts.

Stonewall Resources, a gold company listed on the ASX with a gold project in South Africa, has been caught in a clash between the new China, which is upholding the rule of law, and the old China where personal relationships come first.

Outsiders view it as bribery and cronyism, the Chinese call it guanxi, which crudely translates as “connections” but which carries more complex cultural nuances pertaining to mutual obligation and to the giving and receiving of gifts and favours.

Last year, Stonewall Resources was awarded $12.6 million damages by Hong Kong International Arbitration Centre against a Chinese company that pulled out of an agreement under Australian contract law to buy shares.

Last month, Chinese Courts recognised the award, confirmed jurisdiction and said they would enforce the award.

Now however, the Chinese company, Shandong Qixing Iron Tower, has apparently gone to a local police station to reopen the case, which Stonewall’s chairman says is an attempt to create noise and confusion while delaying the inevitable and perhaps trying to influence a judge.

The significance of this story is that Stonewall is by no means the only company where Australian law has failed to prevail against Chinese personal relationships, and it will not be the last. It pays to know who you are dealing with, one observer told this week.

At the macro level in China, nothing much is happening by way of transactions right now as the Communist Party has its once in five years meeting coming up which will guide reform and policy for the next five years.

Traditionally, nothing happens in the next few weeks leading to the meeting although the reform outcomes are said to be known within the high echelons of the Party. Neither have the dates been revealed though it should be October.

This is a critical event for the world and particularly our region as China may wish to further subsume Hong Kong, leaving the way for Singapore to dominate the region as a low-tax centre for commerce. Capital controls and the issue of the fixed currency will also be discussed.

President Xi Jinping and Premier Li Keqiang are expected to keep their jobs.


Michael West

Michael West

Michael West established to focus on journalism of high public interest, particularly the rising power of corporations over democracy. Formerly a journalist and editor at Fairfax newspapers and a columnist at News Corp, West was appointed Adjunct Associate Professor at the University of Sydney’s School of Social and Political Sciences. You can follow Michael on Twitter @MichaelWestBiz.

1 Comment

  1. Avatar

    I have held shares in Australian companies that have partnered, gone into production with and passed over intellectual property information to Chinese companies only for the whole thing to end badly. Simple advice, don’t go there!


Case for Federal ICAC

Quad Erat Demonstrandum

Revolving Doors

Revolving Doors

Video Channel

The West Report

Support Us

subscribe to michael west media

[ Click to find out more ]

Michael West Email

Get Our Weekly Newsletter

Unsubscribe anytime.

Thank you! We'll also confirm via email.

Pin It on Pinterest

Share This