For six decades, China’s central authorities have promoted development in ethnic regions through special fiscal allocations with the idea that economic development is the key to national integration and inter-ethnic harmony. Yet, inter-ethnic tensions and violence persist in China. Focusing on historical changes to fiscal allocations as the principal policy instrument used by Beijing to promote development in ethnic areas, this analysis finds these changes mirror broad shifts in the country’s national development strategy. As the study argues, this pattern reflects an approach to development policy in ethnic regions whereby policies serve central objectives consistent with a policy process for determining the fiscal allocations to ethnic regions that has been both centrally concentrated and non-participatory. With evidence that this “non-engaging” approach may be exacerbating ethnic tensions, Beijing has made efforts to introduce more “inclusive” approaches to determining policies for ethnic regions; however, whether these approaches will be institutionalized remains unclear.