According to the local government, Shangri-La means "The sun and moon in the heart" in the ancient local language. The county was a key staging post on the Yunnan-Tibet branch of the ancient Tea-Horse Road trading route that connected Pu'er in Yunnan with Lhasa in the Tibet autonomous region.

The route was formed more than 1,300 years ago as the trade in salt and tea with India and Nepal boomed in Southwest China. Zhongdian's wooden-structured houses provided shelter for the caravans and horses that carried the goods from Yunnan to Tibet, before they turned their eyes toward their neighbors in southern Asia.

The ancient town of Dukezong, also known as "Moon Town", was a key settlement on the Tea-Horse Road for more than a millennium. When the city was being built, the local people discovered a type of white clay that could be spread on the external walls of buildings. As a result, all the houses were painted white, making the entire town appear especially enchanting in the silver moonlight.

With a history of more than 1,300 years, the town was built according to the precepts of the utopian society of Shambhala, as described in Buddhist texts. For traders on the road in ancient times, Dukezong was the last stop before they entered Tibet, a relatively easy part of a roundtrip that usually lasted a year. The traders and their horses relaxed in the town, luxuriating in the warm shelters and delicious food.

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