Investments in roads, railways, telecommunications and local state administration have had a major impact on the economy, turbo-charging regional GDP and bringing new prosperity to middle class urbanites, most of who work for the state.

But the rivers of money have also created problems. Massive public spending has attracted an unprecedented number of Han Chinese migrants to Tibetan towns. With skills better suited to work in new industries such as construction and services, Chinese migrants are out-competing ethnic Tibetans in the best-paid jobs. Poorly educated rural Tibetans who have relocated to cities and towns in search of work are the biggest losers. Han Chinese laborers already monopolise the tens of thousands of new jobs generated by new construction projects. In Lhasa, Han Chinese now dominate most types of small business, from transport services to restaurants.

For years, the Chinese government has argued that such migrants can ‘lead the way’ while ethnic Tibetans catch up, but rising inequalities within Tibetan areas and the highest levels of ethnic violence in decades strongly suggest this trickle-down approach has failed. Many Tibetans have never been to school and have only basic literacy in Chinese—the language of commerce and administration. Very few have the skills needed to participate in new economic opportunities. Not surprisingly, video footage of the March 2008 riots shows that many of the rioters in Lhasa and other cities were young men from the countryside.

The problems are not just economic. The historically unprecedented movement of non-Tibetans into Tibetan cities and towns has fueled Tibetans’ insecurity about the future of their homeland’s ethnic distinctiveness. Even many Tibetans on the state payroll fear that their cultural heritage and way of life are under threat. Their fears are compounded by national and local government policies that seek to curtail the influence of organised Tibetan Buddhism by placing restrictions on religious practices and monastic life—a cornerstone of Tibetan cultural identity.

Unfortunately, Beijing continues to insist that ethnic tensions are the result of meddling by ‘separatist forces led by the Dalai clique’. Conveniently, this allows China’s leaders to divert attention away from critical domestic policy failures.

At the fifth Tibet Work Conference in Beijing last month—the first of its kind since 2003, China’s leaders pledged another US$60 billion to Tibet’s development over the next five years. Half of this money will go to Tibetan regions in neighboring provinces outside the TAR—recognition of the fact that many of the 2008 riots took place in these areas.

Unfortunately, more public investment is likely to exacerbate ethnic tensions unless there is a qualitative shift in the way funds are spent. While policy documents increasingly refer to ‘human development,’ ‘fast-tracking’ Tibet’s development typically means only one thing in Chinese government circles—double-digit GDP growth. At local levels, GDP growth is the main indicator used to assess local leaders’ performance. To achieve growth targets, local leaders tend to prioritise large-scale public works over investments in people. And because they need the job done in double time, Han Chinese contractors and their migrant crews are often their preferred agents.

The Chinese government will not achieve lasting stability in Tibetan areas if GDP continues to be policy makers’ primary obsession. Beijing should be much more concerned about the economic marginalisation of Tibetans. Giving Tibetans 12 years of free education is a start, but it is not enough. There is little incentive to go to school if there are no jobs after graduation. And low Chinese literacy means Tibetans struggle to compete academically, especially beyond elementary school when many drop out. As the economy grows and changes, rural Tibetans desperately need to learn new skills. At present, they have little or no access to vocational training programs—programs often talked about in Beijing, but not delivered effectively by local governments. Policymakers should also consider ethnic quotas for state-funded projects. Small loans and training schemes for Tibetan businesses would also help.

In Beijing last month China’s leaders called for ‘development with Chinese characteristics adapted to Tibet’s regional conditions’. This sounds a lot like the failed policies of the past. China’s policymakers should be thinking about how to realise ‘development with Tibetan characteristics’ where the emphasis is on socially inclusive development rather than social control. The achievement of ‘lasting stability’ in Tibet—the Chinese government’s ultimate goal—will demand a more sophisticated policy suite that empowers ordinary Tibetans to participate in their region’s development and to feel secure about the future of their cultural heritage within the People’s Republic of China.

This article was first published here in the Wall Street Journal.

Mr. Hillman is a lecturer in comparative government at the Australian National University and Chair of the Eastern Tibet Training Institute.