Hard sell

In the race to lift the economic fortunes of under-developed western China, few spare a glance at Tibet, the country's most remote region and also its most politically sensitive.

It is somewhat surprising, therefore, to learn from the official press this year that there are some 115 foreign-invested enterprises operating in the autonomous region involving a total investment of US$160m. Two to three years ago the number was closer to fifty. The total includes several groups that are not strictly enterprises at all, including non-governmental organisations and projects undertaken by the likes of the United Nations Development Programme and, charities such as ?Save the Children Fund.?

Among the companies active in the region are several small traders with money sunk into an outlet or two. China admits to some of the money coming from Nepal, and these may increase in future following a recent bilateral agreement to build a second road from Kathmandu to Tibet. There are also some larger-scale projects involving investors from the US, Japan, Germany and Malaysia along with multilateral organisations that are funding supposedly non-sensitive projects in areas such as energy and agricultural development.

Foreign investors of the sort more common in the rest of China are either not present or keep a low profile. Only a few main-stream multinationals have invested in Tibet. For example, Holiday Inn established a joint venture hotel with a government entity, but withdrew in 1997. Mining companies are aware of Tibet's potential, but have so far shied away from a combination of inadequate infrastructure, mixed signals from central and local government and bad publicity. Nevertheless, the authorities in Tibet say that US companies are involved in the development of the Yulong copper mine, China's second largest. Mr. Gabriel Lafitte, a fellow in the Institute of Asian Languages and Societies, University of Mel-bourne, believes foreign investors may be drawn into mining, despite the lack of infra-structure. "There is a major mineral zone stretching from Chamdo to Dechen, at least 300km long, which is rich in both copper and gold," he says. "Several copper mines may soon be in operation, creating a major extraction zone."

The Chinese Academy of Geological Sciences claims Tibet contains significant quantities of 11 minerals. Its chromium reserves are the largest in China and it also contains the largest lithium mine.

The Tibet All Shenquan Mineral Development Co broke ground on a boronmagnesia extraction site last November. With proven reserves of 45m tonnes, this facility is expected to become Asia's largest boron-magnesia maker. Because of dwindling world supplies of boron – used in flares, propellant mixtures, hard metallic alloys and abrasives – a French company was reported to have shifted its supply area from Turkey to Tibet and other foreign groups are also taking a close interest in developments.

An alternative to a direct presence is business by proxy. It is here that the central government's promotion of the west of China as an investment destination offers the most accessible opportunities. Infrastructure and construction companies, and China's state aid projects, for example, need equipment and supplies. China intends to spend Yn31.2bn on 117 construction projects in Tibet in coming years, having spent just Yn8bn over the past five years. Its aim is to bring this barren and under-developed region into the mainstream Chinese economy.

The highway budget could be used to connect Tibet with the nation's inter-provincial trunk network, a move that would almost certainly stimulate resource exploitation. In the telecoms sector, Motorola has recently set up a franchised store in Lhasa, the region's capital. The mobile exchange capacity in Tibet exceeds 100,000 lines and there are now 70,000 mobile phone users.

A proposed railway between Golmud in Qinghai province to Lhasa may need expert advice from abroad, perhaps from Russia or Scandinavia, on laying track on permafrost. Work started in June on this 1,120km line but the construction companies face major problems in completing the work by 2007, according to official media. In addition to the difficulty of building on frozen ground, some 960km of the railway will be at an altitude of more than 4,000 metres, making it the highest rail line in the world.

Investment in air transport
In some respects Tibet is no different a market from anywhere else in China. For example, vehicles increasingly ply the 25,000km of roads, and planes fly its skies. An Airbus A319 was taken through its paces over Lhasa in April in a sales pitch to China Southwest Airlines. Even when Tibet's first rail link comes on line, air will be the most efficient form of cross-border transportation. New airports are planned for 2001-05. Manufacturers of small aircraft may foresee a burgeoning market in future as the further corners of Tibet are opened to tourism.

Power companies, too, may see advantage in Tibet, which will add to its 500-odd power stations. With China now creating a single national electricity grid, energy reserves in the west will increasingly be exploited and transmitted to the east. Natural gas and oil in the Tibetan plateau are likely to be exploited more aggressively in future, and Tibet also has significant hydropower
potential. Domestic companies are likely to do much of the work, but foreign suppliers can piggy back on demand from their bases elsewhere in China.

Tourism is the clearest example of a booming industry, offering substantial indirect benefit to foreign business. A proportion of the Yn650m China says Tibet earned from tourism last year came from the 140,000 foreign tourists out of a total of 565,000 visitors. But the 144 tourist enterprises claimed for Tibet are outnumbered by the hundreds of organisations worldwide that feed off demand for travel to the region. The local tourist authorities predict that Tibet will attract 5.6m visitors over the next five years (up from 2m in the past five-year period), of which 1.4m will come from overseas.

The principal economic drawbacks of Tibet are the size, dispersal and low income level of its 2.6m population. Lhasa hosts the largest concentration of potential consumers, but at a couple of hundred thousand – figures vary, and there is an important floating population – it is tiny by Chinese standards. Average annual per capita urban income was said to be Yn6,448 in 2000, although this seems high given Tibet's relative backwardness. Around 80 percent of the region's population are farmers and herdsmen, according to official sources, with farmers earning an average Ynl,331 a head last year.

China's plans for Tibet, and the very real need for economic development, suggest that some foreign companies will take the region seriously, if only warily. Government officials are encouraging inward investment, which they think they can bring in to mineral extraction and other export-oriented sectors. The department believes it can pull in US$138m in foreign investment by 2005 on an average annual rise of 15 percent a year.

Tibet's two-way trade was worth US$103m in 1996, rising to US$130m in 2000. The government wants to raise this to US$266m in 2005, placing its hopes on minerals, timber, traditional Tibetan medicines, beer and mineral water, according to the Tibetan Department of Foreign Affairs and Economic Co-operation. However, projects that harm the environment, such as logging, may be avoided according to Lafitte, because protection may prove more profitable than exploitation in the long-term. "There is to be a vast global market in the trading of rights to emit polluting gases, and the forests and vast grasslands of Tibet will become valuable commodities whose preservation has a tradable value on that global market," he argues.

As for multinational corporations, few are likely to want to court controversy by investing in Tibet. As BP Amoco discovered last year when taking a strategic stake in PetroChina, China's leading oil producer and actively involved in a project to extract natural gas from Tibet, they can become an easy target for NGOs and activist groups because they are so few in number.