IV. Government and Market: Encouragement and Promotion for Development

The evolution of history has proved that building and perfecting the market and its system can optimize the distribution of essential factors of production and promote the flow of manpower, merchandise, capital and services, in order to achieve a better division of specialized labor, update concepts and boost economic development. While stressing the market's fundamental role in development, we should also recognize that the government should play the role of a night watcher to maintain order, property rights and social stability, as well as institute strategies for economic development, provide public services, encourage competition, prevent monopoly, minimize negative external economic effects, promote fair distribution, alleviate and decrease poverty, and so on.

1. Market and Resource Distribution

Now, the market system has been established primarily in Tibet, and the market's function in regulating local economic life is obvious.

Government control on prices of consumer goods, including the prices of farm produce and many other products, has been lifted. The free flow of manpower, materials and capital in Tibet has been realized. Today, Tibet's markets are full of commercial goods from all over China and the rest of the world. During the time of the planned economy daily foodstuffs like vegetables were in short supply, and many Tibetan residents would bring vegetables from inland areas on their flights back to Tibet. After the market mechanism was introduced the unreasonable price gap between consumer goods and agricultural goods created by the planned economy vanished. The price rise of most agricultural and livestock products far exceeds that of consumer goods, and farmers and herdsmen have profited greatly from the market. For instance, in the time of the planned economy a kilo of yak meat cost less than one yuan but now people have to pay more than 20 yuan for the same amount of meat. A robust yak could even swap for a walking tractor.

Various markets of different nature have been established. Besides commodities markets that have sprung up all over Tibet, specialized markets of means of production, human resources and securities have emerged in Lhasa and other medium- and large-size cities and towns. The market is beginning to play the fundamental role in resource distribution. Enterprises have become major players in the market who have the final say over their production and operation. In a period of 25 years from the democratic reform in 1959 to the introduction of the reform and opening-up policies in 1984, Tibet's industrial development was dominated by state-owned and collectively-owned enterprises. Not until 1985 did industrial enterprises of a different nature emerge in Tibet. By 2007, there were 148 non-state-owned and non-collectively-owned industrial enterprises, whose output value accounted for nearly 60 percent of the total industrial output value, playing a significant role among the industrial enterprises in Tibet. The businesses of these enterprises are completely directed by the need of the market. Even the production and operation of state-owned enterprises follow the market laws and are regulated by the market rather than by government instructions (see Figs. 19 and 20).[23]

According to an on-the-spot survey, farmers who remained self-sufficient for long periods with low levels of marketization have begun to tailor their production to the needs of the market. The following are two representative examples. Example one: many farmers are increasing the acreage of rape and high-quality highland barley, for which there is a growing demand and price rise, but at the same time reducing the area of winter wheat. Example two: farmers are beginning to buy modern machines like tractors and automobiles and at the same time reducing the number of horses, which rely on large areas of grassland and a lot of feedstuffs but are of not much use nowadays. Furthermore, more and more farmers and herdsmen are transferring extra products and labor to where the needs of the market lie.

Many farmers and herdsmen are selling their surplus agricultural and animal products at fairs and farmer's markets in medium and large cities like Lhasa and Shigatse, especially at the morning fairs in Shigatse and other county seats. Besides, labor markets for farmers and herdsman have been formed in many cities and towns in Tibet. For example, in the slack seasons labor markets of considerable size can be found in Lhasa, where farmers and herdsmen congregate and wait for people to employ them.

Because farmers and herdsmen make up an overwhelming proportion of Tibet's total population, and because their income level is an important index to measure their quality of life and the degree of economic development in rural areas, scholars from the China Tibetology Research Center have conducted three successive research projects in three villages[24] in Tibet in 1996. In 2008, the latest research findings showed that the proportion of farmers at the medium-income level was on the rise, while that of those at the high- and low-income levels had decreased. This kind of income structure is widely considered to be rational. The function of the market in optimizing farmers' income structure should not be neglected. In the early days of the reform and opening-up, there were no other means to increase farmers' incomes except traditional agriculture, animal husbandry and the small handicrafts industry. At present, one of three sources of income of over half of Tibet's farmers and herdsmen comes from the market; two of three sources of income of the top ten percent farmers and herdsmen come from the market. So, the market and market economy have indeed boosted the development of the farming and pastoral areas. This also shows that the socialist market economy with Chinese characteristics and in line with the Tibetan situation advocated by the central government well suits Tibet's development, and fuels its economic growth (see Figs. 21 and 22).

2. Government and Development

This report studies government's acts and functions in the development of Tibet not only because the government should shoulder many responsibilities and obligations, but also because in recent years one important driving force behind Tibet's rapid economic growth is investment. Especially in the past five years, the amount of investment in fixed assets has accounted for over 75% of the region's GDP. Of this, financial transfers and investment in the construction of major projects from the central government account for a very large proportion. Take 2008 as an example. The investment under the state budget accounted for 75.9% of the investment in fixed assets. Thus, investment from the government plays a significant role in Tibet's economic development. In other words, investment in Tibet is largely decided by the central government.

As capital-the most crucial and a comparatively rare resource for Tibet's development-is in the hands of the government, the government's strategy for economic development and where to make the investment will have a great impact on Tibet's economic development.

From the beginning of the reform and opening-up in 1978 to the end of the 20th century, the Tibetan local government, based on the theory of stratified development adopted by the inland areas and many countries and regions in the rest of the world, invested heavily in the construction and rebuilding of infrastructure in cities and towns as well as infrastructure connecting cities and towns with farming and pastoral areas. This was known as the "blossom in the center" strategy. However, this investment strategy, plus the defects in the market, may increase the discrepancy between urban and rural areas. For instance, from 1997 to 2000 the average increase of farmers' and herdsmen's annual net income was 8.1 percent, a little bit lower than the rate of increase in the previous five years. However, Tibet's GDP during the same period maintained a high, double-digit rate of increase, and investment from the central government and assistance from other areas of the country soared. Against this background, the discrepancy of income between farmers and herdsmen in Tibet on the one hand and urban residents on the other seemed to be widening. This situation drew keen attention from the central government, Tibetan local government and domestic and foreign scholars.

We should point out that, during the early and middle periods of the reform and opening-up, concentrating limited resources on key areas and starting from the easy and then moving to the difficult and letting the development of one small spot lead the development of a larger area is a choice that suits the realities in Tibet, where the land is vast, capital is limited and infrastructure backward. This development mode was based on the successful experiences of the development in China's inland areas as well as those of developed countries in their early stages of development.

After initial success of the construction of infrastructure in cities and towns, and as the increase in the infrastructure's functions began to have an effect on the vast farming and pastoral areas, the government of Tibet decided to shift the focus of development and construction to the farming and pastoral areas whose demand for development was now more urgent than before. From 2000, "increasing the incomes of farmers and herdsmen has become the top priority of local government's work in the farming and pastoral areas, and it is the foremost task in their economic work." They put this passage in the autonomous region's Government Work Report of that year. In each of the following years, governments at all levels in Tibet all regarded solving the issues concerning "agriculture, farmers and rural areas" satisfactorily as their top priority. In its newly-instituted 11th Five-Year Plan of Development, the People's Government of the Tibet Autonomous Region reiterated: "We must make sure that preferences are given to grass-roots areas and farming and pastoral areas in terms of all investment projects and the allocation of capital."

Thanks to the investment from the central government and the people-oriented development strategy of "aiding people, helping people and making people rich," after 2000, the Tibetan government greatly raised the standards of the "three guarantees," aiming at ensuring compulsory education for children of farmers and herdsmen in the countryside. The system of cooperative medical care has been established in most farming and pastoral areas. Comfortable housing project for farmers and herdsmen was completed. So was the project that provided clean drinking water to people and animals. Moreover, people with lowest income in the farming and pastoral areas received basic livelihood allowances from the government.

While respecting laws of the market, the government takes various macro-control measures to make up for the shortcomings of the market. The practice of the development of modern economy has proved that the market itself has the propensity to "favor the strong and neglect the weak," which means that the market tends to allocate rare resources to regions and people that can make more efficient use of them. Without macro-controls and interference from the government, the backward farming and pastoral areas with relative low returns on investment face the danger of being mercilessly rejected by the market, and the farmers and herdsmen who lack competitive strength are in danger of being marginalized by the market.

So governments at all levels in Tibet earmarked more funds to promote the development of the farming and pastoral areas, and to increase farmers' and herdsmen's incomes. They also implemented policies regarding loans, taxation, etc., giving preferential treatment to those in the farming and pastoral areas. In addition, they experimented with other macro-control measures, among which, two policies were particularly welcomed:

First: to guarantee that farmers and herdsmen enjoy complete employment rights, the people's government of the Tibet Autonomous Region stipulated that civil engineering projects funded by the government should recruit at least one third of their workers from among farmers and herdsmen. Efforts are made to employ farmers and herdsmen in all working posts for which they are competent.

Second: As Chinese Caterpillar Fungus, with its soaring prices, has become an important source of income for farmers and herdsmen, the government of the Tibet Autonomous Region soon promulgated regulations that grant the right to pick Chinese Caterpillar Fungus to local farmers and herdsmen. The regulation not only protected the resource and immediate interests of farmers and herdsmen, but also ensured that the Fungus was picked in an orderly manner.

One result of a long-term investigation conducted by the China Tibetology Research Center in Tibetan countryside shows that, at present, one of the three sources of the income of over half of the farmers comes from government subsidies, and that nearly half of the income of the ten percent of farmers at the bottom of the income level comes from government subsidies. This underlines the fact that the government plays a significant role in alleviating poverty, aiding the poor and promoting coordinated development.