China plans to create a special economic zone (SEZ) to attract investment to the Tibetan capital city of Lhasa, according to official media.

Among the incentives to be offered to investors are tax rates pitched at half the usual level, the China Daily newspaper reported.

The zone is the latest in a series of ambitious development projects for Tibet, including plans to connect the Himalayan region to western China by building the world's highest railway and developing five airports.

China's stress on modernising the Tibetan economy has attracted criticism from supporters of Tibetan independence and human rights activists, who say it threatens to destroy traditional Tibetan culture.

They have also condemned Beijing's policy of attracting immigrants from the Chinese Han majority ethnic group to Tibet, as a result of which Tibetans are a now minority in Lhasa.

Coastal boom town

China's first SEZ, set up 21 years ago in Shenzhen - the region neighbouring Hong Kong - has flourished.

Shenzhen has recorded an average annual growth rate of 31.2%, according to official Chinese figures.

But along with record growth, it has become known for crime, prostitution and corporate sleaze.

China Daily did not indicate what sort of industries Beijing hopes to attact to Lhasa, high above sea-level with a relatively small consumer market.

Tax rates in the Lhasa SEZ will be 15% instead of the more usual 33%, according to China Daily.

Downgrade for zones?

Special economic zones may lose some of their attraction for foreign investors and play less of role in development policy once China joins the World Trade Organisation, probably early next year.

Its entry terms for the WTO included a host of market access measures, giving foreign firms much wider access to China's economy.

But even after WTO membership, preferential policies in SEZ's will remain in place for "three to five years," according to the China Association of Development Zones quoted by China Daily.

Air and rail links

Last month, construction work began on a new $14.4m airport terminal at Gonggar Airport, which serves Lhasa, and is due for completion in 2003.

This year, the Chinese Government pledged to spend $3.8bn to complete more than 100 construction projects in Tibet.

Big development projects already underway in the mountainous region include the 600-mile railway line from the city of Golmud to Lhasa, which could cost at least $3bn to build.