TIBETAN ECONOMIC DISCONTENT -- LHASA MERCHANT ON OBSTACLES

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.


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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

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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

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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