Statement comes as Chinese government is accused of blocking him from traveling to South Africa.
The Dalai Lama has slammed censorship in China as "immoral", following accusations that the Chinese government blocked him from traveling to South Africa to celebrate Desmond Tutu's 80th birthday.
The Tibetan spiritual leader spoke with Tutu on Saturday, answering questions via a video link, instead of attending an event to honour the South African anti-apartheid activist a day after his birthday.
His absence was symbolised by an empty chair at the event at the University of the Western Cape where he was meant to deliver an inaugural peace lecture.
The Dalai Lama told Tutu when asked why the Chinese feared him that "some Chinese officials describe me as a demon so naturally some fear about the demon."
He said hypocrisy and telling lies had unfortunately become part of life in "the communist totalitarian system" and people who spoke truthfully and honestly sparked discomfort.
"I often tell him [Tutu] 1.3 billion Chinese people should have every right to know ... reality, then 1.3 billion Chinese people also have the ability to judge what's right, what wrong, so therefore censorship is immoral."
The Tibetan leader, who has lived in India since 1959 after fleeing an abortive uprising against Chinese rule, also urged China to raise its judicial system up to international law standards.
The furore over the visa overshadowed the run-up to Tutu's birthday after the former archbishop launched a virulent attack on President Jacob Zuma's administration for succumbing to China's pressure to deny the Dalai Lama entry into South Africa.
China has always sought to curb the Dalai Lama's overseas travels, warning host governments that any visit would harm ties, especially if he is met by state officials.
South African foreign ministry officials said the visa process was delayed by problems with the timing and completeness of the application.
However, officials from the offices of Tutu and the Dalai Lama have denied the application was late or incomplete.
Tutu accused the government of failing to side with "Tibetans who are being oppressed viciously by the Chinese.''
China is South Africa’s biggest trade partner.
The discussion between the two Nobel Peace Prize laureates who are close friends was filled with banter.
"As a man of truth, man of God, please live long," the Dalai Lama told Tutu.
"Your 90th birthday, I'm looking forward. At that time, don't forget send me [an] invitation. Then we can test your government."
Tutu received the Nobel Peace Prize in 1984 for his non-violent campaign against apartheid rule in South Africa. The Dalai Lama received his Nobel Peace Prize in 1989 for his efforts to "preserve the historical and cultural heritage of his people.''