Guan Xi-Mac Case

Guan Xi

Guan Xi, as part of Chinese culture, is deeply understood and developed in Chinese daily business operations. However, things might be different for Western companies who want to extend their market.

In 1992, McDonald’s opened its first brunch in Beijing, China, the heart of this country. At that time, China’s economy just started to boom thanks to Deng’s policy of “reformation and opening”. Foreign capitals flood into China and all the western companies enjoy the privilege as well as preference naturally due to the policy. Thus, the very first western fast food restaurant could be located on the corner of Wangfujing Street, where is as valuable as Time Square in New York. In less than two years, the choice of the location proved itself. The sales of McDonald’s surpass all expectations.

Then all the good news turned out to be meaningless overnight. Sir Ka-shing Li, a Hong-Kong investor, settled his attention on the golden spot. Li planned to develop the area as a commercial, residential, and office complex. McDonalds’, obviously, is not part of this plan. Li worked on his “Guan Xi” or network in English, in the main land for years and already established a mature relationship with all the departments related. Also, Hong-Kong at that time was still not returned to the motherland. So the relationship is more close and complicated. Chinese government attitude toward Hong-Kong companies then is more favorable.

Beijing city government dropped the bombshell to MacDonald’s with no advance notice: they officially abruptly informed McDonald’s that it would have to move out within a minimum time range, ignored the fact that there was still 18 years left for the total 20 years lease agreement.

MacDonald’s reaction is normal across most of the western companies who first found their business in China; they took the government to the court to try to enforce the lease. The court refused for certain, and provided a simple explanation; they are not as...