Global Economics

China: It's Not Just Tibet


Unrest in Tibet and Xinjiang illustrates the failure of Beijing's attempt to drive development in its western regions

China's overriding goal this year has been to showcase itself as a stable, unified country proudly ready to host this summer's 2008 Olympics. And that aim encompassed not just those who live in the well-off eastern coastal provinces that are overwhelmingly Chinese, but all of China's 1.3 billion people, including millions of Tibetans and Muslims who reside in the mainland's vast western regions.

That hope now lies in tatters. Over the last week, Beijing has announced it foiled a plot by Uighur Muslims from Xinjiang, in China's far west, to disrupt the upcoming Games, as well as an attempted terrorist act by a 19-year-old Uighur woman on a Chinese airline. And security forces have suppressed protests by Tibetans chafing under Chinese rule in Lhasa, turning a favored destination for world travelers into a sullen, occupied city. "It is really bad here. I shouldn't tell you anymore," says a 39-year-old Chinese resident of Lhasa.

Even as the smoke clears following violent riots and widespread arson carried out by Tibetans and directed against Chinese and Hui Muslim residents, armed soldiers and police line the streets and a curfew is in effect citywide. "Bullets were flying over my head," says one Westerner still in Lhasa. Even now, "the tension is certainly still here. It is physically not possible to go out right now," he says, referring to the armed security presence now dominating the streets.

East-West Income Gap

For China's laggard west and its large ethnic minority populations, things looked a lot more optimistic back in 2000. That was when the government launched its grandly named "Develop the West" program. The aim was to use Beijing's policy and financial support to reverse decades of economic stagnation, boost local provincial economies in part by tapping their rich resources, and ultimately narrow the yawning income gap between the flourishing coastal region of China and its poor western hinterlands. And as an added bonus, the new wealth would help ease ethnic tensions that have for centuries inflamed the loosely controlled western reaches of China (BusinessWeek.com, 12/20/06).

There is no denying that Beijing has tried. Over the past five years alone, the central government has spent more than $40 billion on infrastructure and social programs in the 12 western provinces. Last year fixed-asset investment into western China grew to $397 billion, up 28%, faster than China's national average of 25%. "Continued progress was made in the large-scale development of the western region," said Chinese Premier Wen Jiabao on Mar. 5 in his annual address to the National People's Congress.

However, many of the economic statistics just don't support that optimistic appraisal. Take overall gross domestic product growth for China's west. While it grew an impressive 14.5% last year, several percentage points higher than the national average, the region's total economy still only amounted to $667 billion. That's less than one-fifth of China's total GDP. Tibet's GDP, up 17.5%, was a paltry $4.56 billion, dead last as the smallest economy of any region across China. All together, nine of the western provinces are among China's 10 smallest provincial economies. "The western development plan is a strategy without effective policies," says Zhang Baotong, director of the regional development consultancy center at the Shaanxi Academy of Social Sciences in the western city of Xian.

Infrastructure Projects Breed Resentment

And incomes in largely rural western China continue to lag the rest of the country. That has helped fan ethnic resentment aimed at the millions of Han Chinese who have migrated into the region and have taken skilled, higher-paying jobs building the new roads, airports, and power stations. Chinese typically also operate most of the smaller entrepreneurial urban businesses, including restaurants and small shops. So while overall rural incomes of $583 are less than one-third of urban ones, in the west (where city-country populations tend to split, with the Chinese urban and the minorities rural) it is more extreme. Tibet's rural income is $393, or about one-quarter that of urban incomes, while in Xinjiang it is only slightly higher, at $444. "The urban-rural income gap in the west is already worse than that for the whole country. And it keeps getting bigger," says Zhang.

Meanwhile, some of the biggest infrastructure projects seem to do little for local people, and often even exacerbate tensions. Case in point: the $4 billion Qinghai-to-Tibet Railway that opened less than two years ago and has brought a new flood of Chinese immigrants to Tibet to compete with locals for scarce jobs. In Xinjiang, a 4,000km-long multibillion-dollar pipeline takes gas from the Muslim region to coastal cities such as Shanghai.

Preferential tax policies (such as the waiving of income tax for the first couple of years after a business first invests) have had limited impact. And cheaper labor costs in the far west have not made up for higher logistics expenses. So there aren't many private or foreign-invested companies in western China. "Once businesses have relocated further inland, the cost of transportation rises, making it a less profitable proposition," says Chen Xiushan, a professor in the Institute of Regional Economics & Urban Management at People's University in Beijing.

Chinese authorities have been quick to blame the unrest on a minority of troublemakers being encouraged by groups outside China. The rioting was caused by "external and domestic forces" of the "Dalai clique," claimed Tibet governor Qiangba Puncog while attending the National People's Congress in Beijing. But for the scared 39-year-old Chinese resident of Lhasa, the unrest is more complicated and deep-rooted than that. "A lot of people in Tibet, especially the lamas and monks, want to separate from China and want to be independent," he admits. "The situation is so messed up."

Roberts is BusinessWeek's Asia News Editor and China bureau chief.

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