December 30, 2005


China's looming talent shortage: To make the move from manufacturing to services, China must raise the quality of its university graduates. (Diana Farrell and Andrew J. Grant, McKinsey Quarterly)

With a huge supply of low-cost workers, mainland China has fast become the world's manufacturing workshop, supplying everything from textiles to toys to computer chips. Given the country's millions of university graduates, is it set to become a giant in offshore IT and business process services as well?

New research from the McKinsey Global Institute (MGI) suggests that this outcome is unlikely. (The full report, The Emerging Global Labor Market, is available free of charge online.) The reason: few of China's vast number of university graduates are capable of working successfully in the services export sector, and the fast-growing domestic economy absorbs most of those who could. Indeed, far from presaging a thriving offshore services sector, our research points to a looming shortage of homegrown talent, with serious implications for the multinationals now in China and for the growing number of Chinese companies with global ambitions.

Posted by Orrin Judd at December 30, 2005 8:25 AM

China should be thankful for the post-911 visa rules. The US now forces the best and brightest Chinese post-docs to go back to China, where they can found new chinese companies instead of american ones.

Posted by: Gideon at December 30, 2005 12:07 PM

Who's going to make my stuff?

Posted by: Sandy P at December 30, 2005 12:19 PM

The funny thing is that a decade ago, one of McKinsey's biggest wheels on Asia was loudly proclaiming a boundless future for China.

Described by a fawning press as brilliant, in his books and articles, this gentleman showered China's Communist regime with high praise for keeping the country from spinning out of political control and for making the country richer and richer. He had little but contempt for India's economic prospects, claiming that its politics were actually much less suitable for promoting necessary changes than China's.

Now ten years later, MGI, which is a think-tank within McKinsey itself, is dumping a big bucket of cold water on his notions!

Posted by: X at December 30, 2005 1:46 PM

Whatever progress China makes will always be stymied by its' lack of democracy, free press and well-functioning judicary, all of which are essential ingredients for efficient capital markets.

Posted by: Ali Choudhury at December 30, 2005 1:49 PM

X, is there any pressure for land redistribution in the PRC ? if people own their own property they aren't prone to burning it down and so forth.

Posted by: toe at December 30, 2005 2:57 PM

toe, the rural problem in Communist China today is not really one of land hunger.

Over the past few decades, there has been an unofficial privatization of the land. Desperate to save the economy, the Communist Party had no choice but to allow this. The old Maoist system of collectivized land ownership simply didn't work. So individual peasants today do buy, sell, and trade land.

The problem is, none of the immense changes in the countryside has been codified in a body of law that truly protects property rights. This has led to a situation where those in power can and do appropriate land for their own profit. In Maoist theory, the peasants are a pillar of the Revolution. In reality, ruled and exploited by a lawless state, they have no rights at all.

For example, a local Party big shot might sell a developer the right to use land that is already being farmed. Or he might be the middleman between the central government and local villagers to buy up their land. What then often happens is that the Party hack pockets most of the funds from the sale for himself, leaving only a pittance if anything for the peasants. And if the peasants protest, the Party can call in the militia and the police to silence and massacre them. These are what are among the greatest grievances in rural China today: corruption and injustice.

Posted by: X at December 31, 2005 3:28 PM