China's looming talent shortage

Addressing the shortage

Raising the quality of China's graduates will be a long-term effort, but even modest improvements would make a huge difference. If the proportion of Chinese engineering graduates who could work at global companies increased to 25 percent (as it is in India), from today's 10 percent, China's pool of qualified young engineers would be among the world's largest by 2008.

How can the country raise the quality of its graduates? First, it must change the way it finances its universities. Expenditures for tertiary education are growing quite rapidly-from 2000 to 2002, by more than 50 percent. The number of students increased even more, however, so expenditures per student fell by 5 percent. Funding is also spread unevenly throughout the country: in Beijing average spending per student is more than 30 percent higher than it is in second-place Shanghai and more than twice the level in 25 of the 31 provinces. More money should be focused on raising quality than quantity, and funds for institutions in places other than Beijing and Shanghai should rise dramatically.

In addition, China must continue to improve its English-language instruction. Since 2001, the Ministry of Education has required all students to start learning English in third grade. This is a step in the right direction and will pay dividends in the long run, but English classes are still very large, even at universities, because teachers are in short supply. Furthermore, conversational skills receive too little attention. To resolve both of these issues, China must train many more English teachers and do more to recruit them from abroad.

For the foreseeable future, companies themselves will have to invest more in training and developing the talent they need. When Microsoft, for instance, outsourced part of its Web-based technical support to Shanghai Wicresoft, a 400-employee joint venture with the Shanghai municipal government, it hired ten native US English speakers to teach their Chinese coworkers about US e-mail protocol and writing style. These instructors hold language classes and meet one-on-one with Chinese employees to assess their progress, an effort that raises the joint venture's personnel costs by about 15 percent but brings the language skills of Chinese workers up to speed. Other foreign companies are developing management-training courses, sometimes in collaboration with local business schools, to upgrade the skills of existing middle and top managers.

Companies can also work with policy makers and university leaders to bring curriculums-not only at the top universities but also throughout the university system-more in line with the needs of industry. Software projects are team efforts that require less theoretical knowledge than application skills, which Chinese graduates lack, according to managers at multinational companies. In response, Microsoft has formed partnerships with four universities in China to establish software labs where student interns learn practical software-development skills. Other companies should adopt similar policies. Such public-private education programs make students more suitable for good jobs with world-class companies and ease the transition to middle-management roles later on.

Finally, China's policy makers must ensure that its many students who study abroad return home, since a relatively high proportion of them have the skills needed to work for multinationals. In 2003, some 120,000 Chinese students were studying abroad-the highest number of any of the 28 countries whose supply of graduates MGI has investigated. Moreover, half of these Chinese students were living in the United States, the largest overseas market linked to China. India's diaspora, including people who have returned to their homeland, has played an important role in the growth of the Indian IT and business process services sector while helping to alleviate the country's management shortage. China too needs its expats.

China faces a looming labor shortage that could stall not only its economic growth but also its migration up the value chain. Reforms in the educational system-including a greater emphasis on practical and language skills-will help the country fill its skilled-labor gap.

About the Authors

Diana Farrell is director of the McKinsey Global Institute, and Andrew Grant is a director in McKinsey's Shanghai office.
The authors would like to acknowledge the contributions of Martha Laboissi¨¨re, Jaeson Rosenfeld, Sascha St¨¹rze, and Fusayo Umezawa.

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