The Shih Tzu is, of course, a very small dog. When a dog has a problem with fear, it is important to protect your dog from pushy people and/or dogs. Many nice people will be attracted to your dog as well but remember that it is your job to protect your dog from unwanted attention.
While it will become normal in time for your dog to greet people, having a group surround your dog, having several children pick him up and maneuver him around and such can be very overwhelming to a dog who has not had the slow and steady steps of socializing. In addition, small children, in an attempt to “play” may be hurting the dog.
Whatever your dog is afraid of, should be introduced in slow, small steps.
For example, if your Shih Tzu is afraid of people, have a friend come over for 5 minutes per day for a week. While there, everyone should speak in calm, happy tones. The dog should not be forced to be petted or played with. In time, increase the length of the visits. Remember to not mistakenly train your Shih Tzu to think their fearful behavior is correct. This means no soothing tones or “its okay” comments. When you dog is acting calm, do give praise, pats and treats. When your dog is behaving frantic or fearful, ignore the behavior and continue showing your Shih Tzu that you are not afraid.
Your dog will learn to mimic you. It is your actions, tone and words which will train your Shih Tzu on what is expected and your dog will learn what the difference between a normal calm situation and one which would be a cause for concern (for example, a burglar)
When You Dog Uses You as a “Shield”
If your dog has been climbing into your lap for comfort or leaning into you to "escape" something that is not really a threat, do not allow your Shih Tzu to do so. This, again, gives your dog the wrong message. If you allow your Shih Tzu to hide next to you, this gives the message that there is indeed something to be afraid of and you are there to protect them. If there is no danger, you must not behave as if you are protecting them.
What can you do instead? You can give your dog something else to think of. You can do this by giving a command such as “Sit” with a calm yet firm tone and gentle physical placement if needed.
Whenever your dog is acting calm, give praise, kisses, pats, cuddles and treats (don’t over do the treats, but 4 or 5 small treat per day to reward calm behavior will be fine).