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Tibet’s economic growth an accounting illusion?

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A Tibetan woman treshes the barley during harvest time in Mozhugongka county in suburb Lhasa in Tibet, Friday, 21 October 2005. (Photo: AAP)

In Brief

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?

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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 per cent 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 per cent of the TAR’s GDP by 2012. And 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 per cent). 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 per cent of GDP in 2004 at the peak of railway construction and 76 per cent 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.

But 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. But 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, but it’s 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 also 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 deeply 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.

But 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.

Dr. Andrew M. Fischer is an associate professor of Social Policy and Development Studies at the Institute of Social Studies, Erasmus University Rotterdam.

This article is based on a journal article published here in the March edition of The China Quarterly. A longer brief was also published by the Tibet Governance Project of George Washington University in February 2015.

5 responses to “Tibet’s economic growth an accounting illusion?”

  1. After reading this article, I was wondering why the author did not present an alternative scenario where the current/recent model of economic growth were changed to a no state subsidies and no state-driven investment model and what effects that would have on the economic growth in Tibet?
    It is easy to criticise some actions and policies of the government, but are the subsidies good or bad for Tibet and Tibetans?
    And the title is consistently misleading as its content, I am afraid.

  2. I have the experience in being involved in horizontal fiscal equalisation in Australia and understand the subsidies to some states or territories can be very high. For example, the distribution of the GST revenue to the states and territories is based on the per capita relativities recommended by the Commonwealth Grants Commission. Each state or territory has a per capita relativity, with the population weighted average as 1. Some states or territories have a per capita relativity greater than one and others smaller than one. A per capita relativity of one means you get your population share of the GST revenue being distributed. A state gets a share of the GST revenue that is equal to its population share multiplied by its per capita relativity. As a result, the states with a relativity greater than one get more than its population share of the GST revenue, and vice versa.
    A particular feature of the per capita relativities recommended by the Commission is that the Northern Territory’s can be as large as 5. In another word, the Northern Territory may get 5 times of its population share of the national GST revenue. Put it slightly differently, the Northern Territory is subsidised by 4 times of its population share of the national GST revenue.
    One may ask why it is the case with the Northern Territory receiving so much subsides through the GST distribution process. The main reasons include the following facts:
    NT is the smallest state in terms of population (diseconomy of scale), about 1% of Australian total population.
    The share of Indigenous population in NT is about 30%, as compared to a national average of about or less than 2% of Indigenous population. It is costly to provide government services to Indigenous population.
    It has large land and it has the highest population dispersion, particularly among its Indigenous population, further increasing the costs of government services.
    Further, it is remote territory, far away from the major economic and population centres in Eastern Australia.
    The Northern Territory, whether it is the government or people there, do not complain their per capita relativity is high. Rather the opposite, they argue it should have even a greater per capita relativity.
    It is interesting to see the author of the article is criticising the high subsidies for Tibet from the Central Government!

    • Dear Lintong Feng,

      Thanks for your thoughtful comments. I realise that this is a very sensitive topic and I appreciate your scholarly approach to criticising me. Obviously, I was heavily restricted by the word limit, which I already exceeded. I encourage you to read the full article in China Quarterly (I can send it to you if you like) and, even better, my recent book, The Disempowered Development of Tibet in China.

      That being said, I think that the comparison with indigenous territories in Australia (or in Canada, where I am originally from) is a fascinating topic of comparative research. I fully agree with you that the issue is not subsidies per se, and I fully support strong redistributive policies – China has been exemplary in this regard in terms of regional (interprovincial) transfers mediated by the central government, as I detail in my article. And I agree that in the contemporary capitalist world, peripheral areas such as Tibet are better subsidised than not, given the tendency for outflows of resources, etc. Indeed, even Bhutan is heavily subsidised by India.

      However, the broader question is not the level of subsidies, but the manner in which they are implemented – this is really the crux of my argument, which comes out most strongly in my book. And in the TAR, at the very least, this is quite different from any other province in China, which puts into light the central government’s particular differential treatment of this autonomous region and people.

      Of course, it is not my place to lecture, given that the experience of Canada has also been quite atrocious in this regard, especially of late under the Conservative government.

      Note that my per capita measure is not the same as the per capita relativity that you describe above, given that it does not reflect shares of transfer payments. Roughly, transfer payments to the TAR amounted to about 1.8% of all transfer payments (from centre to provinces) in 2012, versus a population share of only 0.2% for the TAR – hence, the relativity, as far as I understand from your comments, would be in the range of 9 (it was about 5 for Qinghai, the next most subsidised province).

      Best
      Andrew

    • Oh yes, I forgot to mention, your measure of per capita relativity is also quite different in another respect. For instance, I suspect in the context of Australia that a per capita relativity of 5, in terms of a share of GST revenue, results in an amount of transfer/subsidy that is only a small fraction of average per capita household incomes or pc GDP in NT, e.g. say 10-20%. Is that correct? You might have the figures for this.

      To give a rough idea, the tax burden in Australia was 27.3% of GDP in 2012, and 12% of taxes came from GST, so the GST burden was about 3.3% of GDP. So, assuming that all of this was redistributed to states/territories (which is unlikely – some would be reserved for central/federal expenditures, etc), a per capita relativity of 5 would amount to a transfer of 16.5% of GDP (or more, because the per capita GDP of NT is probably lower than national average), minus the amount of GST collected in NT of course.

      Beyond the headline stat that I reported, that direct budgetary subsidies from the central government to the TAR amounted to 116% of the TAR GDP in 2012, the other stat that I reported in the above refers to the rural household incomes as opposed to pc GDP. In other words, the nominal amount of per person transfer payments to the TAR was equivalent 4.6 times (or 560%) the average per capita rural household income in the TAR, and more than 100% the average per capita urban household income. What this means is that, if these transfer payments were simply handed out as cash transfers on an equal per capita basis, and rural households would do nothing other than receive these transfers, then they would 4.6 times richer than they were in 2012. This situation has been building for over the last 20 years, without abating, demonstrating a disconnect between subsidisation strategies and the livelihoods of the large majority of people living in the TAR. So, we are dealing with an entirely different order of proportions and disconnects here, than in the Australian example that you give.

      • You are probably correct in that the GST is only between 3-4% of the total GDP, given the GDP is about $1.5-1.6 trillion and population is about 23.8 million now.

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