Is Beijing Pulling Tibetan Economic Growth Out of a Hat?

Analysts and scholars – including Chinese economists and social scientists – have long been critical of Beijing’s development strategy in Tibet. A heavy dependence on state subsidies to maintain high levels of economic growth cause economic inefficiencies and social inequalities. In the wake of unrest in 2008 and the ongoing wave of self–immolations across the region, many observers wondered whether the Hu–Wen administration – in power until 2012 – would re–evaluate its approach of combining subsidies with hard–line tactics.

Analysts and scholars – including Chinese economists and social scientists – have long been critical of Beijing’s development strategy in Tibet. A heavy dependence on state subsidies to maintain high levels of economic growth cause economic inefficiencies and social inequalities. In the wake of unrest in 2008 and the ongoing wave of self–immolations across the region, many observers wondered whether the Hu–Wen administration – in power until 2012 – would re–evaluate its approach of combining subsidies with hard–line tactics. Would the popular discontent lead to a shift in policy?

A study of fiscal policy in western China from 1990 to 2012 indicates that there was no reversal in Beijing’s economic strategy in the Tibet Autonomous Region (henceforth the TAR) after 2008. In fact, the strategy was intensified. State subsidies and investment surged well above increases in other western provinces.

In 2010, direct budgetary subsidies from the central to local government exceeded 100 percent of the TAR’s GDP for the first time. This even exceeded the peaks of subsidisation during the Maoist period in the late 1960s and 1970s. Thereafter, subsidies continued to surge, reaching almost 116 percent of the TAR’s GDP by 2012. In addition, these figures do not include investment, which is also mostly subsidised in the TAR.

By comparison, budgetary subsidies to Qinghai (the next most subsidised Chinese province, with the next highest proportion of Tibetans) reached 44 percent of GDP. In Guizhou, China’s poorest province, subsidies reached 16 percent. In Gansu, the second poorest, they reached 18 percent. Subsidies increased in these provinces, but nowhere to the extent that occurred in the TAR.

It is then perhaps not surprising that the TAR was recently announced as the only provincial unit to have met its economic growth target in 2014 (of 12 percent). Since government spending and investment essentially drive economic activity in the province, the government is able to meet its target by simply adjusting subsidies. What is surprising is that the economy has not grown faster. Economic growth has been less than the increase in government subsidies, especially since 2008.

This apparent inefficiency is most simply explained by the growing import intensity of the local economy. The TAR’s international trade balance fell into deep deficit after 2002. It reached 71 percent of GDP in 2004 at the peak of railway construction and 76 percent of GDP in 2010.

The TAR also has a large trade deficit with other Chinese provinces, particularly Sichuan, which supplies much of the goods and services consumed in Tibet. These deficits have been evidently worsening with the economic shift away from farming and herding and towards urban areas and large construction projects.

Deficits are further compounded by interprovincial migration. This intensifies the demand for imports without necessarily increasing local production (most migrants work in services or construction).

Consequently, much of the economic growth in the TAR has been an accounting illusion, to the extent that the interprovincial trade deficit has not been deducted from the GDP statistics.

However, the socio–economic consequences have not. The minor portion of subsidies that has managed to reach Tibetan rural areas has been large enough to induce substantial economic activity. Household incomes and material living standards have been increasing. Nevertheless, there has been an increasing disassociation between household incomes and growth. The ratio of per capita direct budgetary subsidies to per capita rural household incomes increased from 0.9 in 1990 to 4.6 in 2012. Much of this occurred during 2000–10. This divergence indicates the extent to which subsidies have been disconnected from the majority of the mostly rural Tibetan permanent resident population.

Subsidy–driven growth has also been associated with a rapid transition of the local Tibetan labour force out of the primary sector of herding and farming, and into construction and urban service sector employment. This transition has been taking place at a faster pace than anywhere else in China has, but it has been without the productive economic foundations or local political autonomy to support these changes.

In this context, the exclusions faced by Tibetans in the rapidly growing urban economies are key. Exclusion is particularly pronounced within the most subsidised sectors – such as urban (especially government) services and construction – which are those dominated by non–Tibetan migrants. The assimilationist policy orientation also severely disadvantages Tibetans in competing for urban employment opportunities. Rising incomes are not necessarily contradictory with these processes of marginalisation in the broader regional economy.

Despite such exclusions, the recent surge in subsidisation has exacerbated the dependence of local Tibetan livelihoods on urban–centred state development strategies. It has intensified Tibet’s state–led economic integration into the rest of the PRC through externalised patterns of ownership and consolidated state control. Social tensions have been exacerbated by these economic dynamics, among other social and political considerations.

To say that the perverse characteristics of this subsidy–driven economic model are somehow related to marketisation, or neoliberalism, diverts attention away from the central role of the state in shaping the structural character of these transformations. The state could dramatically change the situation by adopting a different policy approach in Tibet. This must go beyond simply increasing cultural sensitivity in the delivery of economic development strategies. It would need to embrace, for instance, a far more pro–active approach to preferential employment.

Ultimately, the social tensions and inequities associated with the current economic strategy will continue to persist as long as the structures of ownership and power in the local economy remain unaddressed.

Tibet’s economic growth an accounting illusion? is republished with permission from East Asia Forum