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C O N F I D E N T I A L SECTION 01 OF 04 CHENGDU 000078 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EAP/CM 
 
E.O. 12958: DECL:  4/22/2033 
TAGS: ECON PGOV PHUM CH
SUBJECT: TIBETAN ECONOMIC DISCONTENT -- LHASA MERCHANT ON OBSTACLES 
FACING LOCAL ENTREPRENEURS 
 
CHENGDU 00000078  001.2 OF 004 
 
 
CLASSIFIED BY: James A. Boughner, Consul General, U.S. Consulate 
General, Chengdu. 
REASON: 1.4 (d) 
 
¶1. (C) Summary:  According to a merchant from Lhasa, the overall 
poor education level of Tibetans, their lack of access to 
capital, and the "discrimination" they face from Han Chinese 
make it very hard for Tibetans to succeed in business.  The 
merchant's comments are reflected in a Chinese academic's recent 
analysis of why there are very few ethnic Tibetan businesspeople 
in Tibetan areas of China.  They are also illustrative of the 
possible economic dimension, including rapidly rising prices, to 
the recent unrest.  End Summary. 
 
¶2. (C) An ethnic Tibetan originally from Sichuan Province's 
Ganzi Prefecture, who has sold for the last five years souvenirs 
on the Barkhor (a district in Lhasa surrounding the Jokhang 
Temple) discussed recently with Congenoff in Chengdu his views 
on the problems faced by Tibetan businesspeople.  He described 
how his relatives lent him RMB 30,000 (about US$4,000) as start 
up capital that they had earned by selling caterpillar fungus 
(an ingredient used in tonics and traditional medicines).  The 
merchant rents a table in a small shopping mall arcade.  He is 
one of only six Tibetan merchants among 60 merchants who rent 
space from a Han Chinese who owns the mall.  The merchant, who 
speaks poor Chinese, said that the mall owner gives long-term 
rental contracts to Han merchants, but only one-year contracts 
to Tibetans. 
 
Business Challenges 
------------------------- 
 
¶3.  (C) The merchant travels to Nepal once or twice a year by 
car to buy handmade necklaces and bracelets to sell in Lhasa. 
He noted that the favorable exchange rate between the rupee and 
the RMB makes it possible to buy handmade goods in Nepal 
cheaply.  He remarked on why he believes there are so few 
Tibetan businesses in Lhasa: 
 
-- Many Tibetans are poorly educated; 
-- Many Tibetans can't gather together the capital to start up a 
business; 
-- Many Tibetans don't know how to interact with Han Chinese 
business counterparts; 
-- It's difficult to compete against more skilled Han 
businesspeople.  For example, machine-made Han Chinese 
imitations of traditional Tibetan items are cheaper to make, but 
are sold at much higher mark ups than handicrafts made and sold 
by Tibetans; 
-- Discrimination against Tibetans by Han businesspeople.  For 
example, many of the tour guides in Lhasa are Han and take 
tourists to do business with Han shopkeepers.  The shopkeeper 
then gives a 30% kickback to the tour guide.  The Tibetan 
shopkeepers with their lower profit margins can't afford to pay 
these kickbacks; 
-- Poor language skills. Very few Tibetans speak Chinese well. 
 
Train Also Brought Inflation, Making Life Harder for Poor 
--------------------------------------------- -------------- 
 
¶4. (C) According to the Tibetan merchant, during his past five 
years in Lhasa, he has seen a steady increase in the number of 
Han merchants in Lhasa, but very few ethnic Tibetans going into 
business.  Since train service began to Lhasa in July 2006, the 
merchant has seen more and more people coming to Lhasa, and, 
because of higher demand for goods, rising prices as well. 
Ordinary people are finding it harder to afford living in Lhasa. 
 Government officials, however, make very high salaries and so 
this is no problem for them.  (Note: Another Tibetan with whom 
we talked to recently also commented on rising prices in Lhasa. 
While this could just be reflective of overall national 
inflationary trends, it is likely inflation would be higher in 
the Tibetan Autonomous Region than other areas of China because 
of the added transportation costs associated with brining goods 
there.  End note) 
 
Recent Article by Chinese Academic Jibes with Merchant's Account 
--------------------------------------------- -------------- 
---------- 
 
¶5. (C) Wang Shying, an assistant professor at Qinghai Normal 
University, discussed some of these same problems in an article 
that appeared in the 1/2008 issue of China Tibetology, published 
by the China Tibetology Institute (Zhongguo Zangxue Yanjiu 
Zhongxin) in Beijing.  Wang reviews surveys and discussions with 
Tibetans where he found that the issues noted by our Lhasa 
merchant contact are applicable not only to the Barkhor, but 
throughout Tibetan areas of China. 
 
 
CHENGDU 00000078  002.2 OF 004 
 
 
¶6. (SBU) Begin text of Consulate translation: 
 
China Tibetan Studies (Zhongguo Zangxue); 1/2008 pp. 134 - 138. 
 
The Development of Small and Medium Enterprises in the Tibetan 
Regions of China (Zhongxiao qiye zai zangqu de fazhan). 
 
By Wang Shiyong Assistant Professor at Qinghai Normal University 
Nationalities Department.  He is currently working on a PhD at 
Helsinki University in Finland. 
 
Summary: 
 
Small and medium sized enterprises (SMEs) are a prime driver of 
economic and employment growth throughout the world.  In China, 
non-state SME's contributed 1% of China's GDP in 1979 but had 
grown to 20% of GDP by 2001.  During 2001 - 2005, the proportion 
of people employed by non-state SMEs grew from 65% to 75%, 
employing many people who were laid off by failing state 
enterprises.  For example during 1997 - 1999, 27 million people 
were laid off by state enterprises.  Of these, 22 million found 
new jobs, 95% with non-state SMEs.  The contribution of 
non-state SMEs to GDP is high on China east coast, especially in 
Guangdong, Zhejiang and Jiangsu.  In the Wenzhou, Zhejiang area, 
non-state SMEs account for 95% of local GDP. 
 
The vast majority of China's non-state SMEs are on the east 
coast.  On the east coast, the non-socialist sector of the 
economy contributed 52% of GDP in 2000, while in the west, only 
18%.  In the Tibetan areas of China, this figure is even lower. 
The author of this article, Wang Shiyong in his surveys in 
ethnic Tibetan areas of China found that even where Tibetans 
were in the majority, they were under 20% of the merchants. 
Other scholars encountered the same situation. 
 
For example, a detailed study done in 2003 by the Chinese 
Academy of Social Sciences (See the 2005 study entitled 
"Marketization and Grassroots Social Services: The Case of 
Tibet"  (Shichanghua yu jiceng gonggong fuwu: Xizang anli 
yanjiu) edited by Wang Luolin and Zhu Ling, published by the 
Nationalities Press)  -- a part of a project to study the social 
and economic development of the TAR.  The research report noted 
that if the 1,367 private enterprises and 48,333 individual 
entrepreneurs (getihu) operating in the TAR in 2002, 80% were 
from outside the TAR.  At the Zongjiao Road Kangnong Market near 
the western side of the Potala Palace, of the 645 individual 
entrepreneurs at the market, only two of the stands were run by 
ethnic Tibetans.  Even in places where Tibetans are most 
concentrated, such as the Barkhor area, ethnic Tibetans are in 
the minority.  According to 2003 registrations at the Barkhor 
street commerce and industry office, over 60% of the shops were 
run by people from outside the TAR and fewer than 40% of the 
shops were run by ethnic Tibetans. 
 
The question of why Tibetans cannot effectively take part in 
market competition, or why the market competitiveness of 
Tibetans is relatively weak involves political, economic, 
cultural, geographical and environmental factors and is very 
difficult to answer simply.  To answer the question of the 
causes of why Tibetans cannot effectively take part in a market 
economy would require research into social systems, legal 
systems, and the development of infrastructure, education and 
culture, market access and many other questions.  This article 
explores the present situation of Tibetan SMEs and the 
difficulties they face. 
 
The author, Wang Shiyong in 2004 made a survey of SMEs run by 
ethnic Tibetans on the problems they faced. Of the 95 valid 
responses received, 36 were from TAR SMEs, 27 from Qinghai SMEs 
and 26 from Sichuan Province Tibetan areas SMEs, with the 
remainder from the Tibetan areas of Gansu and Yunnan Provinces. 
The 95 SMEs surveyed are very small as is typical of Tibetan 
SMEs.  Forty percent employ 20 or fewer people.  Another 30% 
employ 20 - 50 people. Only seven of the Tibetan SMEs surveyed 
employed 300 or more people. Although some of the SMEs surveyed 
have 20 - 50 employees, and a few several hundred, the great 
majority of Tibetan SMEs are individual entrepreneurs.  In many 
Tibetan areas, it is rare to see a Tibetan running a private 
enterprise and even in Lhasa where Tibetan SMEs are 
concentrated, Tibetan run private enterprises only account for 
about 20% of all the private enterprises in the city.  According 
to a 2003 Lhasa City Commerce and Industry Association study, of 
178 of the 438 private enterprises registered, they found that 
Tibetan run private enterprises only came to about 20%. 
 
Tibetan enterprises are small and concentrate in just a few 
sectors.  Of the 95 Tibetan SMEs surveyed by the author, 42% 
were engaged in manufacturing or processing, especially of 
Tibetan soap and Tibetan rugs.  Commerce accounted for another 
 
CHENGDU 00000078  003.2 OF 004 
 
 
36% of the enterprises.  The remainder concentrated in the 
service sector, especially restaurants and guesthouses.  Only 5% 
of the Tibetan enterprises were involved in agricultural or 
animal husbandry products. 
 
Tibetans companies are concentrated in just a few sectors. In a 
survey done by the author in Gansu Province's Gannan Prefecture, 
of the 370 enterprises operating on the two major commercial 
streets, only 30 were run by Tibetans.  Of the 30 Tibetan 
individual entrepreneurs, 18 were engaged in small retail trade, 
5 in running restaurants, 4 running a clothing store and 3 
running a small guest house. 
 
The situation was similar in Qinghai Province's Huangnan Tibetan 
Autonomous Prefecture. Of the 494 small retailers, guesthouses, 
restaurants and other businesses on the main commercial streets, 
only 166 or 33% were run by Tibetans.  Worth noting that of the 
33 repair shops that require some degree of skill, not one was 
run by a Tibetan. 
 
Since most Tibetan SMEs are very small, many have no system of 
management, the manager also does the work and so neglects to 
make a long term business plan.  Eighty percent said they had a 
business plan, but is usually wasn't written, existing only in 
the mind of the proprietor.  Eighty-five percent of the Tibetan 
SMEs did not keep sales records.  Very few kept any written 
records about the business. 
 
Moreover, of the Tibetan SMEs surveyed, only 36% had ever 
borrowed money from a bank.  Most got their operating capital 
from family and friends.  Difficulties in finance were a serious 
problem for most Tibetan enterprises - 53% responded that is was 
their most difficult continuing problem.  This shows that what 
is missing is a government policy to give favorable treatment of 
minority nationalities in the area of finance.  It also shows 
that many Tibetan enterprises lack an understanding of and 
ability to handle financial matters.   Other missing elements 
are a fund to guarantee loans and market information services. 
 
Marketing is another big problem the survey revealed. Most of 
the Tibetan run businesses were founded after 1990, and 40% of 
them after 2000, well after reform and intensified market 
competition had come to eastern China.  Thus Tibetan businesses 
just starting up were hit by competitors from eastern China who 
had already been toughened by years of competition and had 
already won most of the market.  Moreover the processing 
technology of Tibetan firms was so far behind competitors for 
the Chinese interior that firms from the interior made big 
inroads into producing traditional Tibetan products.  Today as 
market competition becomes ever more intense, due to a variety 
of historical, environmental, and educational factors, many 
Tibetan are unfamiliar with markets.  As a result, the biggest 
problem facing Tibetan firms is marketing their products. 
 
Tibetan companies also face a severe shortage of Tibetans with 
good technical skills.  Tibetan education is not only far behind 
Han education but also that of other minorities.  For example, 
in Tibet the rate of illiteracy or semi-illiteracy in 2005 for 
people between the ages of 18 and 44 was 44.84%, the highest in 
western China's provinces and regions.  This is much higher than 
the corresponding nationwide rate of 11.04%.  If we look at the 
proportion of people who have graduated from middle school or 
high school, the situation is even worse.  In 2005, China 
nationwide 38.3% of the population had graduated from middle 
school and 12.4% from high school. The corresponding proportions 
in the Tibetan Autonomous Region are 8.4% and 2.1%, the lowest 
in all of China.   Developing education is essential to 
improving the quality of the labor force and to economic 
development.  There is a severe shortage of investment in 
education in the Tibetan areas. In many Tibetan areas there is 
not even one vocational school.  Therefore finding technically 
qualified people in the Tibetan areas is relatively difficult. 
 
Most of the heads of Tibetan enterprises surveyed had relatively 
good educations.  Forty-five percent were graduates of a 
university or technical institute while 27% were high school 
graduates and 18% middle school graduates.  There are very few 
enterprises founded by Tibetans, but nearly all of them have 
good educations.  However, there are far fewer educated Tibetans 
as a whole compared to the Han.  The relative lack of educated 
Tibetans is a severe handicap to Tibetan business.  Nonetheless, 
many Tibetan businesspeople surveyed did not have clear ideas 
about how to run a business -- this shows that even where there 
is Tibetan education, it does not pay much attention to markets 
and business.  As far as I know, in all the Tibetan areas of 
China, there are only two schools where Tibetans can learn about 
developing a business.  Yet many of the teachers at these 
schools are not well qualified.  Some of the teachers teaching 
business have their qualification not in business but in the 
 
CHENGDU 00000078  004.2 OF 004 
 
 
Tibetan language.  The lack of business knowledge makes it hard 
for Tibetans business to compete successful in a very 
competitive business environment.  Many don't know how to make a 
business plan and don't understand how to read financial 
accounts. 
 
There is a very serious need to train Tibetans in business 
management.  Sixty-three percent of the Tibetan businesspeople 
surveyed said they needed help in business management.   Half 
said they need training in marketing.  Faced with these 
problems, some Tibetan enterprises hire Han employees to manage 
the company.  Cultural misunderstandings however, often lead to 
poor communications in those situations, however. 
 
Recommendations: 
 
Entrepreneurs and their personal characteristics are central to 
economic development.  Entrepreneurs need to be risk takers and 
to be good at discovering and taking advantage of market 
opportunities.  Most come from families that have run 
businesses.  In Tibet, there are not many families that have run 
businesses, but Tibetan entrepreneurs come from families that 
believe in letting people choose their own occupation and often 
have a merchant background or have started up a business.  This 
shows the importance of experience to setting up a business. 
 
Due to historical reasons, very few Tibetan have had 
merchandising as their principal occupation.  Their contact with 
markets has been limited to what they use to satisfy their daily 
needs.  Although farmers and herders exchange salt and grain 
every year, this activity was not big enough to create the 
occupation of merchant in Tibetan society.  Before 1952, the 
monasteries controlled the entire political and economic life of 
Tibet and much of the productive activity of the entire society 
was dedicated to providing for the needs of the monasteries. 
The lack of a merchant tradition in Tibet makes strengthening 
education even more important.  Human capital is the most 
important factor in production, especially in the knowledge 
economy of today.  Much research shows that improving education 
and increasing employment is a necessary condition for solving 
the problem of social marginalization.  Some Chinese scholars 
say whether human resources can be developed is the key question 
in the development of western China. 
 
Education is very important but it is not the only thing. 
Research has shown that many successful small and medium sized 
enterprises, before they were founded or in their early 
development, got help and advice from various service 
institutions.  SMEs often need help in matters such as 
increasing productivity, reducing capital costs, improving 
management and absorbing new technology.  Many SMEs are capital 
starved and need help from society. 
 
Getting more Tibetans involved in the market economy will 
require a very large investment in education, and particularly 
in vocational education.  A social services network to help 
ethnic Tibetan SMEs should be established so that they will be 
able to get the market information, advice, planning, and 
production services they need without having to surmount a 
language barrier.  In this way a cooperative environment 
favorable to the development of ethnic Tibetan small and medium 
sized enterprises can be created. 
 
End text of Consulate translation. 
BOUGHNER