BEIJING, (Reuters) — China has set up a 20 billion yuan ($3.2 billion) fund to boost the textile industry in its western Xinjiang region, state media said on Friday, in an effort to enhance stability where unemployment is seen as fueling ethnic tension.

Xinjiang, home to the Muslim Uighur people, has been beset by violence for years, blamed by the government on Islamist militants and separatists who want to establish an independent state called East Turkestan.

Rights advocates say that China's heavy-handed policies, including restrictions on Islam and the Uighur people's culture and language, have contributed to unrest. The government rejects those assertions.

Experts say employment discrimination along with an influx of ethnic majority Han Chinese taking jobs in Xinjiang is fuelling resentment that can spill over into violence.

The fund will support the textile industry for more than a decade and result in the employment of 1 million people by 2023, the official Xinhua news agency said, citing Yan Qin, the deputy secretary general of the Xinjiang regional government.

"Assisting the labour-intensive textile industry is not only out of the consideration to shift it toward the base of raw materials and open up the west, but also carries the significance of safeguarding social stability and realising long term peace and stability," Yan told reporters in Beijing.

Xinhua did not say whether the new jobs would be geared toward Uighurs, long-term Xinjiang residents or migrant workers.

The government has begun to recognise the economic roots of some of the upheaval, especially underdevelopment and a lack of jobs in heavily Uighur areas like rural southern Xinjiang. Young people with little education and few job prospects can be drawn to militancy, it says.

About 200 people have died in unrest in Xinjiang in the past year or so, including a suicide bombing that killed 39 people at a market in the regional capital Urumqi in May.

Officials have made previous pledges to bolter the textile industry in the region, which grows more than half of the country's cotton, much of it by a commercial arm of the military.

China says the sector employs about 200,000 of the vast region's more than 22 million people.

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