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Deciphering Economic Growth in the Tibet Autonomous Region (TIN)

[WTN-L World Tibet Network News. Published by The Canada Tibet Committee. Issue ID: 03/04/10; April 10, 2003.]

TIN Special Report
9 April 2003

Xinhua and several other official Chinese sources have recently released a spate of reports on rapid economic growth in the Tibet Autonomous Region (TAR) over the last two years. These reports are consistent with the pattern observed since the late 1990s: Growth, where it is taking place, is heavily fuelled by central government spending and is overwhelmingly concentrated in the state-sector and/or in urban areas. It therefore bypasses most Tibetans, who are rural and non-salaried. Most of the above average growth is taking place in either construction or in the tertiary sector, which includes trade, transport, services, and government/communist party administration. Productive sectors, such as agriculture, mining, and industry, are either stagnant or growing much slower than the economy in general.

What is exceptional about the growth since 2000 is that it has been fuelled by a sudden increase in government spending by about 75 percent in 2001 alone. As a result the provincial government deficit in 2001 was worth over 70 percent of the provincial GDP. In other words, for every yuan the economy grew in 2001, government spending increased by two yuan. Most of the growth in the economy was therefore related to such spending. This spending was disproportionately channelled into government investment projects, such as the railroad, and into government and Party administration. Investment appears to have excluded the participation of most Tibetans in the process, as there was no reported individual or collective (i.e. non-state) investment in the rural areas. Rural Tibetans have thus been more or less marginalized from rapid growth, and inequalities have increased sharply throughout the province.

Recent reports published by Xinhua estimate that the Gross Domestic Product (GDP) [1] of the Tibet Autonomous Region (TAR) reached 15.8 billion yuan in 2002 (approx. £1.2 billion, Euro/US$2 billion). This is an increase of 12.4 percent from 2001. The reports identified the tertiary sector, construction, and investment as the leading growth areas.

Both the tertiary sector and construction are directly represented in the GDP statistics. The tertiary sector is an amalgam of four categories ranging from transport and trade to finance, social services, and government administration. In 2002 the tertiary sector in TAR was estimated to have reached 8 billion yuan, up by 15.2 percent from 2001, thereby accounting for more than fifty percent of the entire provincial GDP. Construction apparently increased in a similar manner, but the precise values for 2002 have not yet been released in the official reports.

Investment and tourism are not directly represented in the GDP statistics, but rather are split up into several different GDP categories.[2] For instance, much of the category of 'investment in fixed assets'[3] is recorded as construction activity in the GDP statistics and thus the increase in both construction and investment overlaps. Overall, investment in the TAR was reported to have increased to 10.5 billion yuan in 2002 (£800 million or euro/US$1.27 billion), up by 26.8 percent from 2001. Most of this investment was in infrastructure, which was reported to have reached 9.1 billion yuan in 2002, up 25 percent from 2001. Infrastructure investment included the construction of key projects such as a power supply project for the Qinghai-Tibet railway, an airport in Nyingtri, and the Lhasa railway station, or certain public utilities such as the construction and expansion of water supply projects and power grids in the rural areas.

Similarly, tourism is mostly broken up into several categories of the tertiary sector, such as transport and telecommunications, or trade and catering. Tourism was reported to have earned 970 million yuan in 2002 (gross; £74.2 million, euro/US$116 million), a rise of 29 per cent from the year before.

In contrast to the robust growth in construction and the tertiary sector, the official reports imply that agriculture and industry have been rather sluggish, growing at far below the GDP growth rates (although the reports claim that the growth has been good). The worst performance was recorded in agriculture (mostly farming and animal husbandry): the value of total agricultural output had increased by only 4 percent in 2002, which was less than one-third of the overall GDP growth of 12.4 percent and almost one-quarter the growth rate of the tertiary sector. In light of the losses in agriculture suffered during the severe winter of 1997/98, part of this growth would represent a recovery of agricultural stocks, particularly of herd sizes. Similarly, industry and mining also grew by only 6.5 percent in 2002, reaching 1.16 billion yuan (£90 million or euro/US$ 140 million), which was only about half of the GDP growth rate.

The slower performance of agriculture is significant because agriculture is by far the main activity of most Tibetans. Agriculture accounted for 72 percent of employment in the entire province in 2001, or more specifically, about 75 percent of the Tibetan employment in the province, and almost 90 percent of rural employment. Given that around 85 percent of Tibetans live in the rural areas and the rural areas are almost exclusively populated by Tibetans, not Chinese, sluggish agricultural growth would have primarily affected the Tibetans.

GDP Statistics in Perspective

There has been a radical restructuring of the TAR economy within the last ten years, starting in the mid-1990s and accelerating since the beginning of the Western Development Strategy in 1999. This restructuring has been away from productive activities such as agriculture and small-scale industry and into urban services and large-scale construction projects, despite the fact that the TAR, along with Yunnan, is the most agrarian and rural province of China.

As a result, the structure of the TAR economy, already abnormal in comparison to every other Chinese province in 1998, became aberrant by 2001. The tertiary sector accounted for almost 50 percent of the provincial GDP, and construction for just over 15 percent. Industry and mining accounted for less than 8 percent and agriculture for about 27 percent of the GDP. In contrast, throughout the rest of China the tertiary sector rarely accounts for more than one-third of the GDP, while industry and mining consistently account for the largest share, from 30 to 40 percent of GDP. The official reports for 2002 confirm these trends in the TAR, as the tertiary sector surpassed 50 percent of the GDP in 2002, while industry and mining fell to a mere 7.3 percent. Agriculture probably fell to about a quarter of GDP.

Thus the TAR was the only province in China where the entire secondary sector,[4] including construction, was the smallest of the three sectors, even smaller than agriculture. It was also the only province where industrial activity accounted for less of the GDP than construction activity within the secondary sector itself (in most cases construction rarely surpasses one quarter of the secondary sector, with industry and mining accounting for more than three quarters).

One of the few exceptions to this rule is the Qinghai province, but only with regard to the size of its tertiary sector, not with regard to the importance of industry and mining. Qinghai is the province that exhibits the closest characteristics to the TAR, as most of the land area in the province is made up of the high-altitude and thinly populated Tibetan region that the Tibetans call Amdo. However, much of the economic activity, especially the industry, is concentrated in the main city of Xining, close to the industrial centre of Lanzhou, a predominantly Chinese, not Tibetan, city. The main mining regions in Tsonub and Tsojang were once mainly Tibetan but now contain a majority of Chinese and Hui (Chinese Muslims). Otherwise, large sections of the province, such as Tsolho, Yushu, and Goluk, resemble the TAR in geography, economy, and population.

Consequently, in Qinghai both tertiary and secondary activity account for a large share of the economy, reflecting the strong role of industry and mining as well as government and military in the province. The entire tertiary sector accounted for slightly more of the GDP than industry and mining in 2001, but industry and mining nonetheless accounted for 30 percent of the GDP. When construction is added to industry in Qinghai, the resulting secondary sector (mining, industry, and construction) still came out larger than the tertiary sector in 2001 (see charts below).

GDP of China, 1998-2001 http://www.tibetinfo.net/reports/trecon/gdp1.htm

GDP of the TAR, 1998-2001 http://www.tibetinfo.net/reports/trecon/gdp2.htm

GDP of Qinghai, 1998-2001 http://www.tibetinfo.net/reports/trecon/gdp25.htm

Structure of Chinese GDP, 1998-2001 http://www.tibetinfo.net/reports/trecon/gdp3.htm

Structure of the TAR GDP, 19998-2001 http://www.tibetinfo.net/reports/trecon/gdp4.htm

Structure of the Qinghai GDP, 1998-2001 http://www.tibetinfo.net/reports/trecon/gdp45.htm

Tertiary in Tibet

The tertiary sector in the TAR has become the vital engine behind its current GDP growth. By far the largest category of this sector in Tibet, both in terms of absolute economic value and in terms of growth performance, is a category known as 'government agencies, party agencies, and social organisations'. This should not be confused with social services, education, or health, which are considered as separate categories. Rather, it represents spending on government and communist party administration, along with related branch organisations. It also possibly includes non-military security-related categories, such as police, courts, and jails.

Even before 1999, government and party administration was one of the largest categories of the tertiary sector in the TAR, but since then its growth has been phenomenal. In 1998 it was second only to wholesale and retail trade, at 19.2 percent of the tertiary sector. Between 1998 and 2001 the economic value of this category had more than doubled, growing at 47 percent a year on average. By 2000 it had surpassed trade to become the largest single category of the tertiary sector. By 2001 it amounted to 26.4 percent of the tertiary sector (more than one quarter), or just over 13 percent of the total economic activity in the province. This was almost twice the entire mining and industrial activity in the province in the same year, and it was almost equal to the total construction activity as well. The operation of the government and communist party administration had quite simply become the 'engine of growth' in the TAR under the initial years of the Western Development Strategy.

It should be noted that the unusually large and rapidly growing tertiary sector in the TAR, as well as in Qinghai and Xinjiang, might indirectly indicate a military build-up in these provinces under the Western Development Strategy. If the military were included in the GDP statistics (which they are not), they would mostly tend to show up as tertiary activities, in particular as part of this government administration category. Given the large presence of the military in the TAR, its inclusion into the economic statistics would make the tertiary sector of the province appear even larger than it already does. Conversely, the huge increases in the government administration category of the GDP may indirectly reflect such a build-up, as any increase in the military requires a parallel build-up of a complementary command structure. This is of course a matter of speculation, as military activity in China is one of the most closely guarded secrets of the regime.

On the other hand, there have also been noticeable increases in the economic value of social services in the TAR since the beginning of the Western Development Strategy, in line with similar increases throughout the rest of China. In principle this is positive, although it very much depends on the distribution of such activity. For instance, increases in the economic value of education represent in part the building and operation of new schools in the urban areas to service Tibetan, Hui, and Chinese urban élites, or else the expansion of the University of Lhasa, which has been in the highlight of government-sponsored infrastructure investment. This type of spending would be of limited benefit to the rural poor, who cannot afford the urban services, yet are faced with a severe shortage of rural primary and secondary schools. Without any serious effort to bridge the shortfall of rural education in the TAR, increases in the economic activity of education may simply represent a polarisation of education in the province, heavily subsidized in the urban areas yet neglected in the rural areas, where most Tibetan children need to be educated. The same case would also apply to the health sector, where increased economic activity may represent improvements in urban health services while rural health care is neglected.

Unfortunately, the undersupply in rural education has not been addressed. For instance, rural secondary schools are vital for training the rural youth in skilled work and for providing a bridge to higher education for the rural areas. Yet between 1998 and 2001, the total number of regular secondary schools in the rural areas of the TAR had been reduced from two to one (one percent of all such schools in 2001), while over the same time period, urban secondary schools had increased from 18 to 20, and county and town secondary schools from 70 to 79. In this regard, Qinghai, with the second worst education performance in the PRC and a similar rural population density to the TAR, was much better in addressing rural education. About half of the Qinghai secondary schools were located in rural areas, including one-third of the senior secondary schools.

Conversely, the category of transportation and telecommunications has sharply decreased as a share of total tertiary sector activity and has even fallen in absolute value between 1998 and 2001. This is most surprising given all of the hype surrounding transport and telecommunications in the TAR from both the Chinese government and the Tibetan Government in Exile. The fact that this overall economic category is decreasing is actually quite worrisome. Much of the transport activity and government investment in transportation infrastructure in the TAR is in relation to long-distance networks, oriented towards supplying the construction, urban administration, and military stationed in the province. Therefore, the decrease in this overall economic category may actually indicate a severe neglect of local transportation networks, such as rural secondary roads, that are far more important to local people in the rural areas than the long-distance transportation links. Again, this situation in the TAR is in contrast to other western provinces, such as Qinghai, where the category of transport is increasing in importance.

GDP values of the tertiary sector in China, 1998-2001 http://www.tibetinfo.net/reports/trecon/gdp5.htm

GDP values of the tertiary sector in TAR, 1998-2001 http://www.tibetinfo.net/reports/trecon/gdp6.htm

GDP values of the tertiary sector in Qinghai http://www.tibetinfo.net/reports/trecon/gdp65.htm

Structure of the Tertiary Sector in China, 1998-2001 http://www.tibetinfo.net/reports/trecon/gdp7.htm

Structure of the Tertiary Sector in the TAR 1998-2001 http://www.tibetinfo.net/reports/trecon/gdp8.htm

Structure of the Tertiary Sector in Qinghai, 1998-2001 http://www.tibetinfo.net/reports/trecon/gdp85.htm

Where is The Growth Coming From?

To express these figures in another way, between 1998 and 2001 the GDP of Tibet grew from 9.12 billion yuan (£700 million; euro/US$1.10 billion) to 13.87 billion yuan (£1.06 billion; euro/US$1.68 billion), which is a difference of 4.76 billion yuan (£360 million; euro/US$580 million). The primary sector (in the TAR, mostly farming and herding) accounted for 13 percent of this total increase in economic activity. The secondary sector accounted for 25 percent of the increase, but only 3.8 percent was due to an increase in mining and industry, while construction accounted for 21.3 percent. Finally, the tertiary sector accounted for 62 percent of the total reported increase in economic activity between 1998 and 2001. Government and party agencies accounted for more than one-third of this increase in the tertiary sector, or 22.4 percent of the total increase in economic activity. This was more than that of construction. Wholesale and retail trade accounted for 11.5 percent of the increase, while finance accounted for 5.4 percent, education for 8.8 percent, health 3.6 percent, and social services 4.9 percent.

In contrast to this, in the overall economy of the PRC, almost 60 percent of the GDP growth between 1998 and 2001 was due to the secondary sector: 52.4 percent from industry and mining, and 7 percent from construction. Tertiary growth accounted for about 40 percent of the GDP growth, while the primary sector (agriculture) was essentially stagnant, accounting for only 0.3 percent of total national GDP growth.

Sources of Investment in Fixed Assets in 2001 http://www.tibetinfo.net/reports/trecon/gdp9.htm

Leading Industries in the TAR?

The Chinese government often claims that the current strategy in the TAR is to restructure the existing industrial base and to establish certain service/tertiary industries as the 'lead' or 'pillar' industries of the province. This would contrast from past strategies that focused primarily on erratic attempts to establish a base of secondary industries, such as mining, energy, and certain processing industries.

This concept of pillar industry requires clarification. Normally the service/tertiary industries that are able to act as lead industries are found in urbanised centres of economic activity. For instance, one can talk of finance and insurance as a lead industry in certain financial centres such as Shanghai or Hong Kong, London or New York. Trade can similarly be promoted as a lead service industry in trade centres that act as conduits for trade over and above the normal levels of trade found in any economy. Again, examples might include cities like Hong Kong or Shanghai. Telecommunications is also a huge international tertiary industry that has been developed by some countries as a leading industry, although ownership and proceeds in this industry tend to heavily concentrate in the rich countries of the world. Where education services are highly developed, such as in the UK, the US, or in Canada, an education 'industry' might be cultivated by private, semi-private, and even public enterprises in the export of education services. Other service industries might also include cultural industries, such as TV and film, in centres like Bollywood (Mumbai) or Hollywood.

It is difficult to see where these pillar service industries might exist in the TAR beyond the distending government and party administration. There has been much accolade over the expansion of transportation and telecommunications in the TAR, but this expansion appears to have been a very short-lived spurt of construction activity. As mentioned above, the share of 'transport, post, and telecommunications' in the overall tertiary sector in the TAR peaked in 1999 and then fell sharply in 2000. It had even fallen in absolute terms, from 508 million yuan in 1998 to 476 million yuan in 2001, or from 12.8 to 6.9 percent of the tertiary sector, thereby constituting a negative pull on the GDP growth. This contrasts with all of the other western provinces where the same category of transport and telecommunications has been growing rapidly and currently ranges from 15 to 20 percent of the respective tertiary sectors in each province.

Thus despite all of the attention being given by both the Chinese government and the Tibetan government-in-exile to transportation investment in the TAR, overall this 'industry' has been depressed in the TAR. This is possibly due to the fact that most of the transport and telecommunications activity in the province is related to the supply and communications of just a handful of cities, towns, and military outposts, such as Lhasa, Shigatse, Zedong, Nyingtri and Gar, and besides this, little effort is being made to integrate the widespread rural areas into the network. In such a case, certain hubs of activity could appear to be booming in transport and telecommunications while the province as a whole is neglected. Perhaps the extension of the infrastructure was focused on military installations and has since disappeared from the official statistics. Or there may have been a spurt in transport and telecommunications while certain infrastructures were being extended, but once extended, the importance of the category fell. This is a matter of speculation.

The expansion of social services, education, and health in Tibet mirrors similar efforts being made in the other central and western provinces of China, and much of it may only be related to the expansion of urban services, as mentioned above. In any case, the expansion of such services is a mere palliative measure urgently required to mitigate against severe human deprivation in the TAR. Illiteracy among the TAR population aged fifteen and older is still close to 50 percent, death rates are by far the highest in China, and life expectancy is the lowest. Despite official statements that poverty has been drastically reduced in the TAR, absolute poverty, based on a 'basic needs' measure of 2100 calories a day, is still very high, about one-quarter of the rural population in the late 1990s.[5] If anything, social services in the TAR should be increased much more extensively than they are in order to alleviate such deprivation.

The financial and insurance sector in the TAR is considerably smaller than that in the rest of China, including all of the other western provinces. Prior to 1999 it was almost non-existent, but jumped to about 4.5 percent of the tertiary sector in 1999 and has remained at that level ever since. In contrast, finance accounted for 17.5 percent of the national tertiary sector in 2000, and in most of the western provinces it accounted for 10 to 15 percent of the tertiary sector. Overall, the small size of the financial sector in the TAR would imply that it is very difficult for an ordinary person to obtain loans through formal banks, particularly since official finance seems to be monopolized by state-owned enterprises, or else by urban enterprises and by the emerging Tibetan and Chinese urban élite. For instance, observers report that currently there is a real estate boom in Lhasa as many of the newly rich state-sector employees are buying property. Indeed, the jump in the financial sector in 1999 in the TAR was probably related to a loosening of consumer and business lending in urban areas, such as Lhasa, in order to meet the financial needs created by the skyrocketing urban state-sector salaries, or else to the reform of the pension system, again specifically related to state-sector workers. TIN research indicates that rural Tibetans have been largely left out of these changes, and mostly have to rely on informal networks to borrow money.

The only conceivable pillar tertiary industry in the TAR, beyond government and party administration, is tourism. Yet this is an industry that tends to be heavily concentrated in ownership, and thus marginal to most rural and uneducated Tibetans. For instance, statistics from the 2002 China Yearbook indicate that the tourist trade in the TAR was run by 35 agencies in 2001, officially employing only 37 employees. These figures relate to official data. Undoubtedly more were employed, but informally, and thus without the labour protection and excellent salaries accorded to the formal workers. In comparison, tourism in Qinghai was run by 72 agencies in 2001, officially employing 1122 people. The tourist trade in the TAR is also heavily controlled, as observed in numerous reports (for instance, see http://www.tibetinfo.net/news-updates/nu190500.htm). Thus it is unlikely that the tourist trade would allow for much independent entrepreneurship and it is unlikely to have a broad impact across the Tibetan population.

In any case, the actual contribution of tourism to the TAR GDP is dwarfed by the contribution of just one of the main agricultural commodities produced by Tibetan farmers, such as barley or wool. Thus it must be kept in mind that although tourism is a useful 'golden egg' for the provincial government and an important source of foreign exchange for China, agriculture is a far more important source of livelihood for the average Tibetan in the province.

Sluggish Sectors: Agriculture and Industry

The sluggish growth of agriculture characterises the conditions faced by most Tibetans in the province. It also underpins the stagnation of rural incomes in the TAR over the last ten years given the extreme degree of dependence of rural Tibetans on agricultural activities. For instance, a similar if not worse stagnation in agriculture has also taken place nationally and throughout the west of China, but rural incomes have faired much better. In the case of Qinghai and Gansu, the absolute GDP value of agriculture actually fell between 1998 and 2000. In Xinjiang the value of agriculture remained lower in 2001 than it was in 1998. Agriculture in the TAR did not experience such depression over these years, but merely grew at about half of the rate of the overall provincial GDP, although it must be kept in mind that much of this growth represents a recovery from the heavy losses suffered during the severe winter in 1997/98.

The stagnation of agriculture has a more serious long-term consequence on the livelihood of rural Tibetans because the economy of rural Tibet is far less diversified than elsewhere in the west of China. It is specialized predominantly in the production of a small number of commodities such as barley, wool, wheat, and rapeseed. This lack of diversification is aptly demonstrated by the breakdown of the average per capita rural income. In 2001, three quarters of the average rural income in the TAR came from family farming activities and less than ten percent came from wages. In neighbouring western provinces like Gansu, Qinghai, and Sichuan, more than 20 to 30 percent of the average rural income came from wages. In other words, farmers in these other western provinces had much more access to alternative sources of income. Overall their incomes also performed much better in the last ten years (see http://www.tibetinfo.net/news-updates/2003/0602.htm).

Diversification away from non-farm activities is important because it can be a critical factor for a farmer faced with a poor harvest and it can keep a rural household away from extreme poverty in the event of crop failure. Furthermore, non-farm wage labour in China is generally much better paid than farm work, and in any case, farming is simply not providing enough jobs for the rural population. While the TAR is vast, the arable land is extremely limited. The area of cultivated land in the TAR is only slightly larger than that of the city-province of Beijing, only 0.28 percent of the total national cultivated land, despite the fact that the TAR constitutes almost 13 percent of the total national land area. Furthermore, the rural population density has doubled since the 1950s. This has not been due to Chinese in-migration, which is mostly urban. It has been due to the population increase of Tibetans themselves, who have the highest birth rates in all of China. As a result, both the cultivated land and the pastures are under heavy pressure from overuse, and land degradation has been widely reported in the province by both government and independent sources. Therefore agriculture is an extremely limited source of increased employment for the rural population. While technological improvements may benefit the individual farmer by increasing the efficiency of labour, ironically it also increases the redundancy of labour within the overall rural workforce, making the need for non-farm employment even greater. If anything, more Tibetans should move away from agriculture and into other areas of work, but there are very few opportunities. As a result, the fortunes of most Tibetans remain overwhelmingly determined by their agricultural output.

The sluggishness of secondary industry in the TAR seems to reflect a shift away from attempts to establish a secondary industrial base in the province. This in part reflects the environmental concerns of the central government: following recent flooding in central China, moves were made to cut back mining and forestry activities in the ecologically fragile watershed regions, which included most of the Tibetan plateau. Also, given that a very large share of secondary industries in the TAR are state-owned, their slow growth might also reflect nationwide efforts to scale down the role of state-owned enterprises.

However, this is unlikely to be felt by most Tibetans given the already marginal role that secondary industries play in providing jobs for the province. For instance, in 2001 manufacturing accounted for a mere 2.3 percent of regular employment in the province, while mining apparently accounted for only 0.24 percent. The few regular industrial jobs that are available are reserved for a small privileged group of professional staff or well-paid workers, both Tibetan and Chinese, who are among the emerging élite in the province. The slow growth of industry mainly impacts these workers. In mining the situation might be slightly different, as many workers may be working informally under poor conditions. Cut backs in mining might actually close some of the few informal job opportunities for rural Tibetans living in mining areas (see Mining Tibet: Mineral Exploitation in Tibetan Areas of the PRC, published by TIN December 2002, http://www.tibetinfo.net/publications/miningbook.htm).

In any case, the group of privileged state-sector employees is being taken care of very well, not only through very high salaries, which are among the highest in China, but also through social security benefits. For instance, recent official reports from the TAR laud praise on the advances being made in provincial labour and social security programmes, yet the reports refer exclusively to programmes for state-sector workers. These include training and re-employment programmes for the laid-off workers from state-owned enterprises, reforms in the system of old-age pensions for retired state-sector workers, and the establishment of a medical insurance system, which is again directed towards state-sector workers and has only achieved coverage of less than five percent of the total provincial workforce. In other words, most of the reported successes in social security only deal with this already privileged group of workers.

Who is Paying? Who is Benefiting?

The economy of the TAR is heavily subsidised by the Central Government, far more so than any other province of China. This can be measured by the deficit of the provincial government budget (government revenue less government expenditure), because any such deficit must be more or less subsidised through central government support.

Since the beginning of the reform period in China in 1978 up until the late 1990s, the degree of subsidisation in the TAR, as in all other western provinces, had gradually fallen in relation to the size of its GDP. In the early 1980s, the effective subsidy of the TAR by the Central government was worth over 60 percent of the TAR GDP. By 1998, the subsidy, while increasing in absolute value, was only equivalent to about 46 percent of the TAR GDP. A similar drop in subsidy also took place throughout the west and interior of China. In Qinghai it fell to 14 percent, and in every other western province it was less than 10 percent of provincial GDP by the late 1990s. This trend was the result of fiscal decentralisation and the move away from regional redistribution in the economic policy of the central government during most of the reform period.

Under the Western Development Strategy, this trend has been dramatically reversed, particularly in the TAR. Specifically in 2001, TAR government spending increased by about 75 percent, and as a result, the effective subsidy (i.e. the deficit of the TAR government) increased from 5.46 billion yuan in 2000 to 9.85 billion yuan in 2001, an increase of 80 percent in only one year. As a result, this deficit increased from 46.5 percent of the entire TAR GDP in 2000 to 71 percent in 2001. In other words, in 2001 the provincial government deficit was equivalent to 71 percent of all economic activity in the TAR.

In terms of absolute value, more government revenue was being spent in the TAR in 2001 than in neighbouring Qinghai with twice the population, albeit Qinghai and other western provinces also experienced sharp increases in government expenditure. In Qinghai, the effective subsidy (deficit) increased to 27 percent of the provincial GDP in 2001, while in Gansu it increased to about 15 percent and in Xinjiang to about 12 percent.

Provincial deficit (subsidy) as a proportion of provincial GDP, 1998-2001 http://www.tibetinfo.net/reports/trecon/gdp10.htm

Because such subsidies are so overwhelming in the TAR, they have a huge influence on the economy, as analysed above. For instance, it is pertinent to note that the increase in subsidy between 2000 and 2001, worth 4.39 billion yuan (£340 million; euro/US$530 million), far outweighed the increase in GDP between those two years, which was equivalent to only 2.13 billion yuan (£160 million; euro/US$260 million). This is the epitome of 'pump-priming' the economy: for every one yuan of GDP growth in 2001, the government increased spending by two yuan. It is hardly surprising that the TAR experienced one of the highest growth rates of western China in 2001 under such circumstances.

Though discouraged by international institutions like the IMF, such deficit spending is in principle appropriate for poor and economically depressed regions, and the western provinces have been clamouring for such increases for years. In particular, such support for deficit spending can be seen as a compensation for the years of gradual reform in which western China was systematically disadvantaged by the pro-active and preferential treatment of the coastal areas of China.

But the real issue in the highly unequal Tibetan regions is: who is the real beneficiary of such spending? If the spending is heavily concentrated in few hands or few areas, there is a risk that the benefits will also be very concentrated in few hands or in a small number of highly prized status projects, while not addressing the needs of the bulk of the population. It is the case that the government is spending a lot of money per person in the TAR. For instance, government spending in 2001 was equivalent to almost 4000 yuan (£306; euro/US$484) per person in the province. This was almost three times the average annual rural income per person in the TAR, yet rural incomes have remained remarkably stagnant considering this explosion in government spending. In contrast, nationally the government spent about 1000 yuan per person, which was equivalent to less than half of the national average rural income per person; yet national rural incomes have grown much faster over the last decade than those of the TAR. So the flood of government spending does not necessarily translate into a direct impact on local standards of living.

Obviously, much of the increase in government spending has been going into various large-scale projects such as the Qinghai-Tibet railroad, which is projected to require more than 20 billion yuan (£1.53 billion; euro/US$2.42 billion) in investment. This is reflected in the TAR government expenditure. Government expenditure on capital construction, which is the category that would include the construction of the railroad and other such investments, accounted for one third of total government expenditure in the TAR in 2001. As explained previously, this has not yet shown up in the transportation category of the tertiary sector, as it would come under construction instead. Nationally, capital construction only accounted for about one eighth of government spending. Similarly, expenditure on government administration in the TAR accounted for almost 14 percent of total government expenditure, whereas nationally it only accounted for 9 percent. Thus much of the government spending took place in areas that would have had little impact on the average Tibetan - rural, undereducated, and relegated to cheap casual labour.

Conversely, despite the dismal human development indicators in the TAR, less priority was given to social spending than was the case nationally. For instance, only about 8.5 percent of government expenditure in the TAR was spent on the operating expenses of education, while nationally, over 15 percent of national expenditure was spent on education. A smaller proportion of total expenditure was also spent on public health and on supporting agricultural production and agricultural development in the TAR than nationally. In other words, the increased government spending was mainly focused on the government's own prioritised infrastructure projects rather than on the basic needs of the local population.

It should be noted that even at these lower proportions of social spending, more yuan per person was still being spent on social spending in the TAR than nationally. But this measure must be qualified. To take the example of education, the costs per person of providing education in the TAR are much higher than elsewhere in China for several reasons. For one, the salaries of teachers in the TAR were almost double the national average in 2001. Also, it is relatively more expensive to service a low population density region than a high population density region, because the catchment area of one school will cover a much smaller population, and thus the costs of providing school infrastructure per student are higher. Finally, education infrastructure in the TAR is top-heavy. There are less primary and secondary schools per 1000 population than in the rest of China, but there are more universities. Within the universities, the ratio of teaching staff to students in the TAR is two-thirds higher than in the rest of China. Because universities are more expensive to service than primary and secondary schools, and because a higher teacher-student ratio also makes a university more expensive to service, the top heavy structure of education in the TAR requires much more funding per person than in the rest of China. As a result, although there are more yuan per person being spent on education in the TAR than elsewhere in China, there are actually less teaching staff per person, and far fewer primary and secondary schools per person.

'He Who Foots The Bill Gets To Choose The Guest List'

The official references to “investment in fixed assets”, the driving force behind current growth, overwhelmingly refer to the expansion of the state sector, most of it completely bypassing the average Tibetan. It is mainly comprised of large-scale capital construction projects, such as those related to the railroad and other long-distance transportation infrastructure. To a lesser extent investment also includes certain public utilities such as the construction and expansion of water supply projects and power grids in certain rural areas, most likely those around Lhasa and in the Lhoka and Shigatse prefectures (which do benefit Tibetans in those areas). It also refers to the construction of real estate, which has been mainly urban. Urban real estate would include the construction of a “Comprehensive building for the Communist Party School of the TAR”, which was one of the 62 construction projects under the 9th five-year plan (1996-2000), or current expansion work of the University of Lhasa. It also would include the construction of certain monuments, such as the recently inaugurated monument for the peaceful liberation of Tibet in Lhasa (see http://www.tibetinfo.net/news-updates/2002/0402.htm).

The composition of this investment has been overwhelmingly state-controlled in contrast to the rest of the PRC. In 2001, almost 95 percent of such officially reported investment in fixed assets came from state-owned units. In comparison, nationally only 47 percent came from state-owned units, and the other western provinces had proportions that were similar to the national average. None of the other western provinces, even Qinghai and Xinjiang, exhibited the same degree of state concentration in investment as that observed in the TAR. In contrast, collective-owned units, which have been the main vehicle for the township and village enterprises in rural China, accounted for only 0.3 percent of investment in the TAR, none of which was reported in the rural areas. In China as a whole, collective-owned units accounted for over 14 percent of national investment in fixed assets, four-fifths of which was rural. Furthermore, individually-owned enterprises in the TAR only accounted for three percent of investment in 2001, again none of it in the rural areas. In China, individually-owned units accounted for almost 15 percent of investment, of which over half was rural. Finally, just under one percent of investment in fixed assets in the TAR was made by share-holding economic units, and about one percent by either foreign-funded enterprises or enterprises funded from Hong Kong, Taiwan, or Macao. The equivalent national proportions were 15 percent and 8 percent respectively.

In all of these cases, the other western provinces neighbouring the TAR exhibited much higher shares of collective, individual, and share-holding investment than Tibet, similar to the national shares. In other words, while there might have been a sharp increase in investment in Tibet, up until 2001 this investment remained exceptionally restricted, apparently offering very little leeway for individual and collective business initiatives in the rural areas.

Contribution to GDP growth from 1998 to 2001 http://www.tibetinfo.net/reports/trecon/gdp11.htm

These massive increases in investment show up largely as construction in the GDP statistics. They therefore explain the boom in construction activity, which doubled between 1998 and 2001. Similar construction booms also took place in several other western provinces. What is striking and unique in the case of Tibet is that the boom took place within the context of a tiny and slow-growing industrial sector. Construction booms in other provinces are at least partly related to the expansion of productive capacity, while in Tibet the boom is mostly related to either large-scale infrastructure projects (of dubious economic value, but important strategic value) or else to administrative expansion in the urban areas. This has produced a radical restructuring in the provincial economy, but not one that appears to be benefiting the majority of Tibetans, nor one that would be sustainable without continued massive inflows of investment and subsidised expenditure from the central government.

Who Wins?

Overall, the GDP statistics indicate an astonishing concentration of ownership and control by the state-sector within the TAR economy, in contrast to the trends elsewhere in China. Because the orientation of the state-sector in the TAR is neither production-based nor local, the concentration of economic activity reinforces a stark duality between the rural and urban areas. There is very little integration or linkage between the two, such as through urban firms outsourcing production to rural firms, as observed in coastal and central China. The economy of the urban areas primarily floats on government spending. Much of the required skilled labour is imported from China, along with many of the consumer goods. Skilled workers in the province export much of their savings back to China. Even wealthy urban Tibetans are known to invest their savings in different parts of China where profits are much better. Overall, there is only a marginal need in the urban areas for input from the rural areas and rural Tibetans are usually only able to integrate into the urban workforce as casual cheap labour.

In contrast, the rural areas have very little if any non-farm employment, making it difficult to bridge the gap with the urban areas. The fortunes of the Tibetans in these rural areas are largely defined by the prices they receive for their agricultural commodities, mostly barley, wheat, rapeseed, and wool. In the mid-1980s, the prices for these commodities were favourable, explaining the relatively positive performance of the Tibetan rural incomes in that decade (despite their poor education and health standards). In the 1990s prices for barley and wool have been unfavourable, in part due to the liberalisation of wool imports in the late 1980s and early 1990s, and in part due to the fact that barley is less protected by the government than either wheat or rice. Yet Tibetan farmers remain almost entirely dependent on these commodities.

This in turn has fed a sharp increase in all forms of inequality throughout the province over the last decade. The principle inequality is urban-rural, due in part to the spectacular increases in urban state-sector salaries and wages that have been riding the wave of increased government spending. In 2001, the average urban income in the TAR was more than five and a half times the average rural income. In 1990 this ratio was only about two and a half to one, and in 1995 it was a bit more than four to one. Urban-rural inequality is also an issue throughout China, but by far the worst case is found in the TAR. The national ratio of urban to rural incomes in 2001 was only about three to one. The next highest ratio after the TAR was found in Yunnan, at about four and a half to one.

Ratio of urban to rural household incomes for each province from 1990 to 2001 http://www.tibetinfo.net/reports/trecon/gdp12.htm

Inequality within the urban areas of the TAR also appears to be increasing. In the urban areas inequality is essentially determined by access to formal employment. Those who have state-sector and related jobs are very well off, even by national standards, as the average money wage of staff and workers in the TAR was the third highest in China in 2001, only after Beijing and Shanghai. To be precise, the average money wage of staff and workers in state-owned units in the TAR was higher than in Beijing. This group of workers includes Chinese and Hui, but also includes close to 100,000 Tibetans, who actually form the majority of staff and workers in the province, although probably disproportionately in junior positions. These Tibetans represent what is touted as the new Tibetan middle-class in the province. In other words, inequality is equally between Chinese haves and Tibetan have-nots as it is between Tibetan haves and have-nots.

While urban incomes are among the highest in the province, so too is urban poverty, and thus urban inequality as well. A recent study on urban poverty in China by the economist Athar Hussain from the London School of Economics, who is well known for his work on China, and published by the International Labour Organisation, indicates that urban poverty rates in the TAR were actually the third highest of China in 1998, at around 11 percent of the official urban population.[6] These official urban poor would be largely those urban residents excluded from state-sector employment. They would not necessarily include unregistered rural migrants.

Per Capita Income and Urban poverty rate http://www.tibetinfo.net/reports/trecon/gdp13.htm

Similarly in the rural areas, inequality appears to be fairly pronounced and on the increase, according to the sparse indications available from rural surveys. Inequality in the rural areas would again be determined by formal employment: those few who have access to the rare rural state-sector job would tend to rise above the rural 'masses' on the tide of skyrocketing state-sector wages.

In other words, while the aggregate economy of the TAR is growing rapidly, so too is marginalisation and polarisation within the province. Government economic strategy seems to be reinforcing divisions due to its excessive control and concentration of spending, investment, and ownership within the dynamic sectors of the economy, while neglecting the basic needs of the general population, particularly in the rural areas. As a result, the relevant socio-economic indicators - stagnant rural incomes, high rates of illiteracy, and so forth - seem only to reflect the reinforcement of an emerging Tibetan underclass within the province.

Notes [1] The Gross Domestic Product (GDP) is the sum of all economic activity (value-added, not gross) of residents and non-residents within a particular country, or in this case, province. [2] They are also reported in gross terms and not net terms, and thus the reported values are not directly comparable to the GDP statistics, which are reported in net, or 'value-added' terms. [3] 'Investment in Fixed Assets' is divided into 'investment in capital construction' (i.e. the construction of infrastructure such as railroads, hydroelectric installations, irrigation canals, administrative buildings, an industrial plant, a school, or a hospital), as well as 'investment in innovation' (i.e. upgrading of technology), 'real estate development', and 'other investment'. [4] Note that the “secondary sector” in the Chinese statistics includes mining and industry as well as construction. Usually construction accounts for a marginal component. Industry here should not be confused with the abstract economic concept of industry that is often used synonymously with "sector", as in primary industry, secondary industry and tertiary industry. The etymology of the word industry in these latter cases is derived from the concept of work, as in "being industrious". The specific usage of "secondary industry" on the other hand refers to transformative and processing activities, i.e. taking an unprocessed input and transforming it, thereby adding value to the input. The classic example of this is wool or cotton that is transformed first into textile and then into clothing, each a value-adding step of secondary industry. Such industry ranges from light and labour-intensive to heavy and capital (machinery) intensive. [5] In the late 1990s the National Bureau of Statistics of China calculated a national basic needs poverty line, based on the food and non-food items required to consume 2100 calories a day, which came out to an annual per person income of around 880 yuan in the rural areas. Assuming that price levels in the TAR are comparable to the national average, about one-quarter of the rural population of the TAR had per capita net incomes below this line in 1999, according to the official surveys for the province. More precisely, 19 percent had per capita incomes that were less than 800 yuan, while 36 percent had incomes less than 1000 yuan. In other words, more than one third of the rural population was either living in absolute poverty, or else was extremely vulnerable to falling into absolute poverty. [6] This is measured in terms of the same 'basic needs' poverty line as explained in footnote 5, but calculated according to the cost of living for the urban areas of each province in China. The poverty rate of eleven percent is measured according to per capita household income. If measured according to per capita household expenditure, the poverty rate would be 19 percent, the seventh highest in China. See Hussain, A. (2003): "Urban Poverty in China - Measurement, Patterns and Policies", InFocus Programme on Socio-Economic Security, ILO: Geneva. http://www.ilo.org/public/english/protection/ses/index.htm

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