The 5 July event in Urumqi inspired rethinking about Beijing's policy towards Xinjiang. This paper will examine Beijing's interests in Xinjiang from historical, political, economic and security perspectives, and the challenges Beijing faces in pursuing and protecting its interests. By examining the tensions between the Han and ethnic minorities, especially the Uyghurs in Xinjiang, the paper argues that the Xinjiang issue involves China's core interests and the most serious challenge Beijing faces is how to cope with ethnic tension in a highly sensitive region surrounded by big powers.