It has been proven that the shih tzu is descended from one of the oldest lines of domesticated dogs in the world. It is believed that their center of domestication is found in Tibet rather than China, having been sent there around 1000 as tribute to the Emperor.
They were, in fact, palace guarding dogs who were trained to be held comfortably by ladies of the court as well as alerting the shape of their face to look more like a lion, or more specifically, what the Chinese interpretation of what a lion looks like.
Though such practices are considered barbaric by modern standards, it was once acceptable to kill the girl babies of mothers and give them Imperial shih tzu puppies to nurse, instead.
The breed gained its current conformation under the influence of the last Imperial Chinese ruler, the Empress T'zu hui, in the mid to late 19th century. Though the breed certainly existed before this time, the eventual color patterns and shape of the Shih Tzu breed were achieved.
Though she lived intimately with Shih Tzu much of her long life, the Empress was only photographed once with one of her dogs. This pure brown dog was reported to be one of her favorites, though palace eunuchs took care of the rest of them.
After the Communist in China, there were as few as 14 Shih Tzus left in the world, most of them having been smuggled out in the 1930s. An effort to re-establish Shih Tzus was undertaken in the West, and the breed was saved, though genetic material from some other (related) dogs crept in during this time. Hsi-Li-Ya was the last Shih Tzu bitch to leave China, in 1952 and relocated in England where she became part of the UK breeding program.
Today there are several hundred thousand currently registered and pure-bred Shih Tzus worldwide, not to mention the many mixed breed dogs that carry Shih Tzu blood.
Nearly all "pure-bred" Shih Tzus in the UK are decended from an early 1950s cross with a pekinese in an effort to create a smaller dog. Thus the UK strains of shih tzus are slightly different from those imported to other countries (namely Scandinavia and North America) since the blood lines are so compressed.
Unlike nearly all animals other than primates, the Shih Tzu has has hair rather than fur. It falls out when it reaches a certain length, rather than shedding according to seasonal changes. Of course, a dog that lives in the palace doesn't have to worry about fluctuations in temperature.
Though one commonly sees ads and information regarding "impreial" or "tea cup" Shih Tzus, there remains only one standard for the dog in competition. Dogs under 4kg (9 pounds) are not accepted. The Shih Tzu Clubs of America and UK warn that such breeders are inherently disreputable.