New York Times: "Educated and Fearing the Future in China"

One reason this blog was started was to give advice to Chinese students on where to study in the UK (for economics and finance). See right hand column and scroll down.

One big issue is the real value of education. Education is seen as very important in China and families will save for 20 years to send their only child to take a postgraduate education for 1 year in the UK.

Does this make sense? Are the returns high enough? The New York Times investigates.

A number of opinions are sought. This article makes a number of important points.

Bottom line - the number of high skilled jobs is not matching supply - result - unemployment of highly educated (and expensively educated) workers.

There is a lot of economics that needs to be considered. (1) too few graduates going into self employment, (2) too much concentration in the coastal cities forcing up wages and house prices, (2), education system and what it really teaches, (4), brain drain.

Educated and Fearing the Future in China [NYT]

As China’s economy recovers, employers are competing to hire low-skilled workers, but many of China’s best and brightest, its college graduates, are facing a long stretch of unemployment.

In 1999, the government began a push to expand college education — once considered a golden ticket — to produce more professionals to meet the demands of globalization. This year, more than 6.3 million graduates will enter the job market, up from one million in 1999. But the number of high-skilled, high-paying jobs has not kept pace.

What might be done to correct the mismatch between expectations and reality? How is this problem altering Chinese attitudes about upward mobility? If college graduates are not reaping economic rewards, how will the next generation view the value of education?

* C. Cindy Fan, associate dean of social sciences, U.C.L.A.
* Yasheng Huang, professor of political economy, M.I.T.
* Daniel A. Bell, professor of political philosophy, Tsinghua University
* Albert Park, economist, University of Oxford
* Loren Brandt, economist, University of Toronto

To read more on each persons perspective you need to visit the website directly.

Materialism and Social Unrest
Cindy Fan

C. Cindy Fan is associate dean of social sciences and professor of geography at the University of California, Los Angeles. She is the author of “China on the Move” and numerous articles.

Like prostitution, stocks, private cars, beauty pageants, and McDonald’s, “unemployment,” thanks to collectivization, was practically absent from Chinese life for the three decades after 1949.

The Chinese economy, no longer centrally planned, has not put enough people back to work.

Deng Xiaoping’s economic reforms paved the way for the collapse of inefficient state-owned enterprises, shattering the “iron rice bowl” of millions of workers and creating the first wave of unemployment in post-Mao China.

Unemployment among college graduates is a hot-button issue in China. A large number of young people have little other than materialism and consumerism to believe in — a general description of Chinese society today since socialist ideology lost its grip. Not having a job is a perfect recipe for social unrest.

Today, China’s official unemployment rate is about 4.3 percent, but it is a gross underestimate because of underemployment among both rural and urban Chinese — they may have a job but their skills are underutilized and they are underpaid.

What explains this situation? No doubt, the global economic crisis has contributed to job loss, but China is considered one of the first economies to recover from the recession.

Another explanation widely cited in the media is the government-directed increase in university enrollment since the late 1990s. But even with that expansion, less than 8 percent of the Chinese population are college-educated compared with more than one in four in the U.S. That suggests there is much room for growth in higher education, especially if the country is to live up to the expectation of “China’s century.”

Instead, three explanations may account for the relatively high unemployment among college graduates. First, geography matters. Young people from smaller places and rural areas, upon obtaining a university degree, are likely eager to go to or stay in big cities. This effect is crowding the labor market in cities like Beijing and Shanghai and hurting the economy of small cities and towns.

Second, globalization matters. By rough estimates, one quarter of the Chinese who have studied overseas have returned. Nicknamed “sea turtles” (haigui), these returnees are highly competitive and can easily push the domestic college graduates down the job hierarchy.

Finally, China’s economy continues to be dominated by the industrial sector, which accounts for about 49 percent of the gross domestic product. While services — the most likely sector for college graduates — account for about 40 percent of the G.D.P., high-skilled, professional jobs are still relatively few compared with low-end service jobs like those in sales.

Creating high-end jobs and increasing the incentives for young people to live in smaller cities are obvious ways to reduce their unemployment. But this is easier said than done. The Chinese economy is no longer centrally planned, and as we have observed on this side of the Pacific, relying on the market alone — even with stimulus packages — has not yet put enough people back to work.

A Terrible Education System
Yasheng Huang

Yasheng Huang is professor of political economy and international management at Sloan School of Management, Massachusetts Institute of Technology. He is the author of “Capitalism with Chinese Characteristics” and will soon begin a large-scale survey of college graduates in China.

In 2007, the job openings for new graduates fell by some 22 percent compared with 2006, according China’s National Development and Reform Commission.

Although Chinese universities have pockets of excellence, they are churning out people with high expectations and low skills.

Some estimate that 30 percent of Chinese engineering students will not find jobs after graduation and that the average pay of the college graduates is now approaching that of rural migrant workers. At the same time, factories in Guangdong province cannot find enough labor. What is going on?

The idea that China is running out of unskilled labor is a myth. The news reports typically concentrate on Guangdong but this does not mean the country as a whole is short of unskilled labor. Development in rural areas in the past six years has meant that rural residents, previously denied economic opportunities close to home, now have a choice between going to Guangdong and staying in their hometowns. Many choose to stay. Any “labor shortage” in Guangdong is mostly evidence that the factories should not be located there in the first place.

But the job market is a problem for college graduates — with the opportunities created in the wrong places. Colleges educate students, but in China they also give a young person a formal right to move to an urban center.

You cannot tell a Chinese college graduate, “you’ve invested years and money in a college education, but your job prospects are in your home village.” So there is now a geographic mismatch between locations of jobs and locations of college graduates.

Secondly, there is a skills mismatch. In my conversations with Chinese managers and entrepreneurs, they constantly complain about a shortage of people with the right set of skills, capabilities and inclinations. China is so short of the right human capital, and books with titles like, “War for Talent,” are best sellers in China.

The Chinese educational system is terrible at producing workers with innovative skills for Chinese economy. It produces people who memorize existing facts rather than discovering new facts; who fish for existing solutions rather than coming up with new ones; who execute orders rather than inventing new ways of doing things. In other words they do not solve problems for their employers.

You multiply this skills mismatch by a sixfold increase in the college enrollments between 1997 and 2008, you get a sense of scale of the problem. Although Chinese universities are not without pockets of excellence, they are churning out people with high expectations and low skills. That combination cannot be good for any country, let alone a country with a low capita income.


Going Back to Mao?
Daniel Bell

Daniel A. Bell is professor of political philosophy at Tsinghua University and author of “China’s New Confucianism: Politics and Everyday Life in a Changing Society.”

“In education, there are no social classes,” Confucius said. The value of equal opportunity for education has deep roots in Chinese culture and may help to explain why most Chinese parents, regardless of social background, put so much pressure on their kids to do well in school.

Even at an elite university, students are lowering their aspirations or settling for government jobs.

It also helps to why explain the university entrance examination system — one of the least corrupt institutions in China — is designed at least partly to provide an equal opportunity for all students. Those who make the cut go on to university, regardless of social connections.

In response to societal demands for more educational opportunities, the government has boosted university enrollment by 30 percent annually over the past decade. Even in the context of a booming economy, the predictable consequence is that there are large numbers of unemployed college students. My own students — graduates of the elite Tsinghua University — are also feeling the pinch, though it usually means lowering their aspirations or changing their plans rather than coping with unemployment.

In the past, it wasn’t too difficult for graduates in the humanities to find highly paid jobs with foreign companies or Chinese financial institutions in Beijing or Shanghai. Many graduates are now considering working in smaller and less developed cities. Others are enrolling in graduate programs that delay the job search. Still others are considering jobs outside of their majors.

One of my graduate students has found a job as a Chinese teacher at a highly regarded secondary school and she says “with this job it will be impossible for me to make a great fortune but I’m quite sure I will be very happy.”

Increasing numbers of graduates are competing to take the civil service exams. Whatever their private misgivings about the government, a government job is increasingly seen as the best option in economically uncertain times.

In response to the job crunch, the government is cutting back on university enrollment growth to 5 percent annually. But the demand for university spots won’t stop growing and the government will find it increasingly difficult to maintain a “harmonious society.”’

The only long-term solution, in my view, is to change parental expectations. Not everyone is destined to be a successful professional or government official, and students will need to be filtered at an earlier age to vocational training, similar to the educational system in Germany.

But parents need to accept that working with hands can be just as socially valuable as working with the mind. A bit of Maoism, in that sense, might need to be reintroduced to China.


Waiting It Out
Albert Park

Albert Park is a reader in the economy of China at the University of Oxford. He has co-directed several surveys on China’s urban workers and is currently leading a World Bank-supported project on the impact of the global economic crisis on employment in China.

China has been confronting the challenge of employing college graduates for some years now. The number of graduates from regular institutions of higher education increased dramatically from 9.5 million in 2000 to 37.8 million in 2006.

The broader trends definitely suggest that the economy will be able to absorb more graduates.

Meanwhile, the urban unemployment rate for college graduates increased from 6.3 percent in 2000 to 11.9 percent in 2005, while declining for those with less education, according to calculations based on census data. It would be surprising if the expectations of college graduates have not begun to adjust to the new reality.

In recent years, many college graduates have been disappointed by the salaries for starting positions. Some may feel they would rather wait for a better first job, since first jobs can strongly influence future career paths. Of course, wages of college graduates tend to rise with experience once employed. Eventually, the costs of waiting will force graduates to accept available job offers.

But are sufficient jobs available? The economic crisis certainly reduced the job market for recent graduates, but evidence suggests that the Chinese economy has bounced back.

The broader trends definitely suggest that the economy will be able to absorb more graduates. First, the economic returns to college education (the percentage difference in wages for college graduates compared with high school graduates) in urban areas have increased tremendously over time, from less than 12 percent in 1988 to nearly 40 percent by the early 2000s, with no signs of declining, and such economic returns are highest for recent graduates. This suggests that increases in the demand for college-educated workers continues to outpace the increase in supply.

Overall, the percentage of the national urban labor force that is college-educated remains less than 10 percent, while global integration and rapid technological change increasingly place a premium on high-skill workers. China’s college graduates have reason to be optimistic about the future.


College Educations, Needed and Desired
Loren Brandt

Loren Brandt is a professor of economics at the University of Toronto. He is a research fellow at the Institute for the Study of Labor in Bonn, Germany. He has published widely on the Chinese economy and has been involved in extensive household and enterprise survey work in China. He is the co-editor of China’s Great Economic Transformation.

China’s urban labor market is fairly sharply divided between workers with urban residency permits (hukou) and migrants from rural areas. In general, the overlap in the job market for these two populations is relatively modest, but it has been increasing over time.

China’s emerging middle class will continue to demand expanded educational opportunities for their children.

Of the total urban workforce of 475-500 million, 60 to 65 percent have urban residency permits (hukou) with the remaining being migrants. A majority of those with residency permits (upwards of three-quarters) work in the “formal” sector in jobs that offer more security, higher wages, as well as the benefits of China’s social safety net. The migrants are more likely to be found in the “informal” urban sector, including manufacturing, construction and services.

For migrants, one huge barrier to jobs in the formal urban sector is their significantly lower levels of education. The most recent arrivals from the countryside have an average educational attainment of middle school (9 years in total), or five years less than their urban counterparts. Migrants are also willing to take the less desirable jobs that urban residents usually avoid.

Estimates suggest that between 2002 and 2008 urban employment grew by nearly 4 percent a year (or 15 million new urban jobs annually), with annual employment growth of migrants outpacing that of urban residents (5.1 percent versus 3.3 percent). Indeed, on the eve of the recent financial crisis, labor markets in many parts of China were fairly tight.

At the end of 2008, total urban employment began to decline and continued to fall through the first half of 2009, but there are indications that urban job growth is now recovering.

The problem facing new college graduates is neither the economy nor the migrants.

Instead, it is the result of a rapid of expansion in higher education and a serious mismatch in the labor market. In 2003, surveys were already pointing to these difficulties. Notably, women, graduates from China’s lower-tier colleges and universities, and those with degrees in education, literature and science were faring more poorly. There were also important regional differences.

Nonetheless, overall there will still be high economic returns for a college degree, and China’s emerging middle class will continue to demand expanded educational opportunities for their children.

China’s educational system needs to do a better job of providing the skills that are valued by the market. On the demand side, other reforms, including those in the financial system, are required to relax constraints facing China’s private sector, which creates jobs. Neither of these changes, however, will happen quickly.

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