Going into this trip, we didn't know much about Shangrila. Isn't it a fictional location? Wiki tells me that Shangrila County in China used to be called Zhongdian but was renamed in 2001 after the land from James Hilton's novel 'Lost Horizon' to promote tourism.
It was originally mapped as part of Tibet but was reallocated as part of Yunnan province, again to increase tourism. The point being that visitors to Shangrila could go on a basic Chinese visa and not have to apply for the pesky Tibet permit.