Ethics and Diamonds : Paradoxical issues surrounding Guanxi relations in China

While in recent years much research attention has been directed towards China and its various industries, the Chinese diamond industry has been largely neglected. China is the world’s second-largest diamond processing center after India, and the second-largest consumer market for polished diamonds following the United States. It is also predicted to surpass both countries in the near future. We identify a paradox in the Chinese diamond industry, namely, that while Chinese businesses often follow a relational governance model, China’s diamond industry tends to employ rational mechanisms of governance and exchange. We discuss the main challenges for business ethics in China, with a focus on the paradox in the Chinese diamond industry as a case study using the GRX (Ganqing, Renqing and Xinren) scale. We used interview protocols and a two stage research process to examine the influence of the GRX constructs on relationship satisfaction and performance. Due to the complexity of gathering data on a relatively secretive industry, we complemented the fieldwork by collecting further evidential artifacts from journals, books, magazines and
government officials. We ultimately identify five interrelated themes that help explain why exchange in the Chinese diamond industry is frequently more transactional than relational. Furthermore, we show how weaknesses in China’s governance systems have allowed fraud and corruption to permeate this industry and explain why business ethics appear poorly developed. The current study offers a new look at this under researched industry. Particularly, the manuscript illustrates a model of trust building based on relational exchange and explains the paradox through the business model presented. The research also helps to provide some rationale for the pervasiveness of corruption and identifies issues affecting the maturation of business ethics in the Chinese diamond industry and in some sense, China’s industries in general.