Shangri-La is administered by Diqing Tibetan Autonomous Prefecture of Yunnan Province. Shangri-La is the "Eden in dream". Since it first appeared in British novelist James Hilton's Lost Horizon in the 1939, it has been associated with the mystique of a place which could not possibly exist here on Earth.
Located at point where Tibet, Sichuan and Yunnan all meet In the past, the Shangri-La was called Zhongdian or "Jiantang" in Tibetan. Shangri-La means the "sun and moon in heart", an ideal home only found in heaven. There the lofty and continuous snowy mountains, endless grasslands, steep and grand gorges, azure lakes and the bucolic villages always leave a deep impression on visitors.
The town is split between Tibetan and ethnic Han residents, as well as a fair smattering of Naxi, Bai, Yi and Lisu, with the surrounding countryside entirely Tibetan. While the crass name change in 2001 was a sign of the desire for increasing mass tourism a la Lijiang, the town has got nowhere near Lijiang's crowds, and it's still possible to experience the area's Tibetan heritage and see gorgeous countryside in near isolation.
Zhongdian was renamed Shangrila for marketing reasons. Signs in bus stations still use Zhongdian. There is also a third name in Tibetan, Gyelthang. The original Shangrila, from James Hilton's novel The Lost Horizon, was a (fictional) hidden paradise whose inhabitants lived for centuries. Hilton (who never went to China) located his Shangri-La in the Kunlun mountains. However, elements of his story were apparently inspired by National Geographic articles about various places in eastern Tibet (including Zhongdian); hence China's rationale for claiming the name.
Local Khampa Tibetans claim that the name Shangri-la was most likely derived from their word for paradise "Shambala," by Hilton through exposure to Rock's writings on the region.