Investing in Tibet, the Roof of the World

August 20, 2010 Posted by Chris Devonshire-Ellis Reading Time: 7 minutes

Aug. 20 – Foreign direct investment in Tibet is often a contentious issue, as Holiday Inn discovered following a shareholder revolt over their managed property in Lhasa a few years back. On the basis that running a hotel on the roof of the world demonstrated unwelcome support for China’s administration of the territory, a group of lobbyists got together and promoted the boycotting of Holiday Inn until they pulled out of Tibet. The campaign worked. Holiday Inn, alarmed at a potential drop in revenues, canceled their contract and the only Western managed major hotel chain in Lhasa ended its operations. It did little, however, to the Tibetan economy or to the hotel. Rebranded and now under fully Chinese management, all the protesters accomplished was a drop in revenues for Holiday Inn, and a decline in service and standards in Lhasa for the international traveler. The hotel is still there.

As I noted at the time, the boycotting of projects in “protest” at Chinese occupancy of Tibet is a futile pastime. If foreign investors won’t invest, then the Chinese will, and that means more white tiled unsympathetic cheap construction than more considerate approaches that are generally the remit of the more ethnically sensitive foreign investor. The Holiday Inn protestors did little other than to engage in self gratuitous self righteousness while denying local Tibetans employment. When the company pulled out, locally trained Tibetan staff were laid off in favor of Chinese employees. So much then, for making political points over Tibetan FDI.

While Tibet will never be a prime location for foreign investment, there are sensible opportunities in the region that can assist the local indigenous population and that can be ethically advantageous. Abandoning Tibetans to rely purely on their Chinese landlords is really neither a particularly sensible nor sensitive option. And while I have a lot of respect for the Dalai Lama, I do not always agree with his position over the territory. The building of the railway to Lhasa, opposed by the Dalai Lama, has had spin off advantages to the benefit of Tibetan culture. More Han Chinese are finding Tibetan Buddhism as an active solution to the crass materialism that exists in China, while Tibetans themselves are more able to travel across the mainland and are opening up Tibetan cultural stores, restaurants and bars across the country. While the Dalai Lama would seek to keep Tibetans closed off, the railway has in fact helped spread the concept of Tibetan culture further afield. For that culture to survive, it needs to expand, develop and prosper.

I mention this as when we first produced an issue of China Briefing Magazine “Investing in Tibet” back in 2002, I had many calls from people demanding to know what I was suggesting. Yet Tibet isn’t a museum piece of ancient, salient monks quietly going about their meditative ways as a form of higher, wiser values that should not be disturbed. If so, it would lead to atrophy and eventual extinction. Tibet, more than ever, is a living, breathing society that also needs to develop and move on.

The investments we have handled in Tibet have mainly been with non-profit organizations, including NGOs, charities, and R&D centers. But there are opportunities, and if conducted sensibly and with respect for the land and the people, I see nothing wrong with that. Tibet has been the beneficiary of a program of re-investment and reform enacted in 1980, including the granting of more religious freedoms and the re-privatization of agriculture. There was little foreign investment in Tibet aside from a few back packer type bars and guest houses until the opening of the Qinghai-Tibet railway, which promises to give the region a facelift in the next few years. The expansion and new development of old routes across into India and Nepal may yet reinstate Lhasa as a prominent regional trading hub. It is worth remembering that Lhasa for centuries was a trading city, and acted as an overland hub and trading station for goods and products flowing between India and China. Lhasa’s closest seaport was Calcutta, and even today that city retains a sizeable Tibetan population as a result.

Tibet’s challenging terrain means that the infrastructure is somewhat underdeveloped, although the central government is committed to improving transport links within Tibet and to neighboring provinces. Central to this is the Qinghai-Tibet railway which opened in July 2006. The central government has also invested a further RMB100 billion on 180 infrastructure projects, including the upgrading of the main Lhasa airport, improving the availability of drinking water and extending the railway from the provincial capital Lhasa to Xigaze, the region’s second-largest city. Roads have also been upgraded and no longer collapse with regularity as in the past.

The Qinghai-Tibet railway has daily services to Beijing, Chengdu, Xining and departures every other day to Shanghai and Guangzhou. A project to extend the line 170 miles to Xigaze was announced in May 2007, and there have been additional discussions about extending that further west to Katmandu, the capital of Nepal, and possibly even a spur to the Nathu La Pass, close to the border with India. China and India reopened the strategic Nathu La Pass in July 2006 for border trade for the first time in 44 years. Nathu La was a major trading point between the two countries before it was closed in 1962 following a border conflict. India is quiet on the subject on an extension of the rail line to Nathu La as the border area with Tibet is sensitive due to territorial claims, and the prevailing Indian position is one of deliberate underinvestment on their side based on the fear of giving the Chinese a road system to use to just walk into India. If border issues can be resolved, it may one day be possible to see a significant regeneration of Sino-Indian trade passing through Tibet. There are signs that this is already occurring. In 2009, the annual value of trade between Tibet and Nepal reached US$249 million, up from US$122 million in 2005.

Over the past five years, the central government has also invested US$2.16 billion in improving transport conditions and upgrading roads and highways in Tibet with a total length of 12,926 kilometers. A road to Everest Base Camp was completed before the 2008 Beijing Olympics. A regional road network links all major prefectures and cities, but the quality of the roads is still quite poor and the traffic capacity is generally low. There are highways connecting Tibet to neighboring Sichuan, Yunnan, Qinghai and Xinjiang provinces. Subject to frequent landslides, the Sichuan Tibet Highway is considered one of the most dangerous roads in the world. Tibet is surprisingly wet, and constant flooding of the Tibet River, coupled with exposure to extreme summer heat and winter cold make road maintenance an ongoing struggle.

In terms of flights, there are three airports in Tibet. Gonggar Airport connects Lhasa with most other Chinese cities including Beijing, Shanghai, Guangzhou and Chengdu. The airport is located in Gonggar County, about 95 kilometers south of Lhasa. Tibet also has smaller airports at Chamdo and Nyingchi. In June 2007, construction began on a new airport in Ngari, scheduled to open in October 2010.

Tibet has in fact now reached a key period of economic and social development. In 2009, the region’s total GDP increased by 12 percent to RMB39.59 billion, sustaining the GDP growth rate of more than 12 percent for the last six years. Its per capita GDP is RMB13,861 and the minimum wage level in Tibet is RMB730.

Tibet is rich in water, land, sunlight, mineral and biological resources. The region’s primary industry is agricultural while Tibetan industry also comprises electric power stations, coal mining, timber and agriculture such as barley, wheat, pulses and some fruit and vegetable production. Test drillings have also recently shown large reserves of copper and iron. Tourism is a major industry in Lhasa and Xigaze. In 2006, the Tibet Autonomous Region received over 2.5 million visitors, among whom 154,800 were from abroad. Tourism generated an overall RMB2.77 billion in the region in 2008, and that is expected to climb, while the region is also becoming more self sufficient. Imports to Tibet decreased by 36.8 percent to US$67 million, while exports increased by 46.8 percent to reach US$330 million.

Tibet’s foreign trade has also increased, moving up to US$397 million in 2007, a rise of 36.9 percent from 2006, fuelled mainly by the Qinghai-Tibet railway and the reopening of Nathu La Pass between China and India. The railway has certainly assisted FDI, since it became operational on July 1, 2006, Tibet has approved the establishment of 20 overseas-funded businesses, bringing in US$34.34 million of contractual investment. The railway is projected to help double tourism revenues by 2011 and reduce transport costs for goods by 75 percent in Tibet. It is also estimated that the railway will carry 75 percent of the total 2.8 million tons of cargo in and out of Tibet by 2011. There are also opportunities in high tech research – being at such an elevation means R&D is being carried out by several Chinese, American, European and Latin American funds exploring the development of solar power and battery storage development. Water management is also a developing industry here – Tibet is suffering glacial loss and the technologies being developed to combat global warming and better management of water are also underway here. Technologies developed in Tibet may yet pave the way ahead for the global demand for energy and in eco-sustainable developments. If so, the Dalai Lama would have something to be really proud of.

Tibet also enjoys investment benefits in terms of attracting FDI. These include low tax rates, tax holidays, and in some cases, even the provision of free land for certain agricultural development and research projects.

The fact remains that for Tibet, there is a future. Denying that through the withholding of investment is not the way forward. Eco-friendly, ethically conscious development is, and the region is both in need and has potential for corporations sensitive to this. For foreign investment in particular areas aligned with the uniqueness of Tibet’s geological position, the region is open for business and opportunities exist.

Chris Devonshire-Ellis is the principal and founding partner of Dezan Shira & Associates. The firm has 18 years of foreign investment experience throughout China, including Tibet. For assistance and advice over laws, taxes and incentives for foreign investment in Tibet please contact the firm at info@dezshira.com. Chris also contributes to India Briefing , Vietnam Briefing , Asia Briefing and 2point6billion

Recommended Reading
“Running a Hotel on the Roof of the World – Five Years in Tibet” by Alec Le Sueur
(The story of Holiday Inn’s Lhasa joint venture)

Related Reading
The Complete “China Goes West” Series

Going West
(Includes complimentary back issues of Western Region themed editions of China Briefing Magazine)

Trade Through Nathu La Pass Reopens