Tibet’s Potemkin economy

For a different angle on China’s regional economic differences, here’s Tiff Roberts with a good piece on a very under-covered story: the structure of the Tibetan economy. The gist:

For the past two decades, Tibet’s economy has outperformed China as a whole. Its growth has averaged 12.4 percent annually over that period, compared with a national average of about 10 percent and Beijing’s 2015 target of 7 percent. But these statistics are misleading: The Tibetan miracle is the result of massive subsidies that have done little to foster productive enterprises in the territory of 3.15 million people.

Since China annexed Tibet in 1951 and its religious and political leader, the Dalai Lama, fled into exile in India, the central government has sent more than 648 billion yuan ($100 billion) to the region. …Andrew Fischer, a professor at the International Institute of Social Studies in The Hague and an expert on Tibet, says subsidies from Beijing dwarf the local economy, amounting to about 112 percent of economic output, which was 80.8 billion yuan in 2013. Fischer says it’s “more than one would see in a highly aid-dependent African country.”…

One side effect of Beijing’s subsidize-and-invest policy is that Tibet is afflicted by a version of the profligacy that helped lead to China’s own slowdown. The region is plagued by inefficient and money-losing state-owned enterprises. As of 2013, they accounted for about 22 percent of all companies in Tibet, compared with 2 percent in all of China, according to a recent research paper written by Jin Wei, an expert on China’s ethnic minority policy at the Central Party School in Beijing. The state-run companies in construction, mining, and the tourism industry also exacerbate ethnic tensions. They are not big employers of Tibetans, the majority of whom make their living as herders and farmers. …

“I don’t dare predict what day Tibet will be able to develop independently,” says Ma Jinglin, vice director of the Development and Reform Commission of Tibet, a government body. “It takes time to build industries that will create blood for ourselves, rather than getting a blood transfusion.”

The bizarre structure of the Tibetan economy is obvious from even a cursory glance at the data. My index of the economic influence of state-owned enterprises ranks Tibet as the fourth-most SOE-dominated province, after Beijing, Qinghai and Gansu. Since SOEs are often the preferred channel for the government to accomplish economic goals, this is a pretty good index for most purposes. But where Tibet is unique is the level of direct government spending in the economy, i.e. not mediated through SOEs. Government spending accounts for 40% of Tibet’s GDP, while 10-15% is the more usual level for other provinces. In a cyclical sense this is beneficial, as Tibet is hardly feeling the current slowdown at all: it reported 9.8% real GDP growth for the first three quarters of 2015. But the reason they’re not feeling the slowdown is that they didn’t have a real economy to begin with. It’s a bunch of civil servants in Lhasa, some investment projects done with central government money, and, sadly, not much else.


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