China’s higher-ed­u­ca­tion glut

Financial Mirror (Cyprus) - - FRONT PAGE -

China’s gov­ern­ment, by em­pha­sis­ing the need for a bet­ter-ed­u­cated work­force to com­pete with the West, is fu­el­ing this trend. This year alone, China pro­duced 7.65 mil­lion univer­sity grad­u­ates – a his­toric high – and around nine mil­lion high school stu­dents took the gaokao, China’s gen­eral univer­sity ad­mis­sion exam. These are stag­ger­ing fig­ures, even for a coun­try with a bil­lion peo­ple and a ter­tiarye­d­u­ca­tion en­roll­ment rate that is one-third that of ad­vanced economies. To put the trend in per­spec­tive, China grad­u­ated fewer than two mil­lion peo­ple from col­lege in 1999, and the pass rate for the gaokao was only 40%, half of what it is to­day.

Ed­u­ca­tion is never a bad thing in it­self, but the move toward “mass uni­ver­si­ties” of the type that emerged in the West af­ter World War II is oc­cur­ring too fast and has ar­rived too soon for the Chi­nese econ­omy to ac­com­mo­date it. With China’s tran­si­tion to a post-in­dus­trial econ­omy far from com­plete, sig­nif­i­cantly broad­en­ing ac­cess to univer­sity un­der­mines the qual­ity of ed­u­ca­tion and has high col­lat­eral costs, so­cially and eco­nom­i­cally.

For ex­am­ple, to meet the Com­mu­nist Party’s am­bi­tious en­roll­ment goals, in­sti­tu­tions have low­ered ad­mis­sion stan­dards and ma­tric­u­lated stu­dents into fields of study with no mar­ket value, just to ac­com­mo­date them. This has se­verely de­graded the qual­ity of ed­u­ca­tion at sec­ond- and third-tier uni­ver­si­ties con­cen­trated in China’s in­ner prov­inces, thus widen­ing the de­vel­op­ment gap be­tween China’s ur­ban coast and ru­ral hin­ter­land.

Mean­while, China, with a grad­u­ate un­em­ploy­ment rate of 16%, is pro­duc­ing more highly ed­u­cated work­ers than the econ­omy can ab­sorb. The wage premium for work­ers with a bach­e­lor’s de­gree has de­creased by roughly 20% in re­cent years, and new grad­u­ates of­ten must ac­cept jobs – such as street clean­ing – for which they are vastly overqual­i­fied. Un­der these con­di­tions, many re­cent grad­u­ates now join the Com­mu­nist Party be­cause mem­ber­ship stands out to po­ten­tial em­ploy­ers. But it is dif­fi­cult to see how the la­bor mar­ket can be ef­fi­cient if em­ploy­ers are mak­ing hir­ing de­ci­sions on the ba­sis of po­lit­i­cal fa­voritism rather than merit.

As more Chi­nese stu­dents at­tend univer­sity, fewer are grad­u­at­ing from vo­ca­tional schools, which teach the skills that the econ­omy ac­tu­ally needs. In fact, the de­mand for qual­i­fied blue-col­lar em­ploy­ees is so high that in 2015 the coun­try’s 23 mil­lion tex­tile work­ers earned, on av­er­age, $645 per month – equal to the av­er­age col­lege grad­u­ate.

The Chi­nese gov­ern­ment has partly ac­knowl­edged this im­bal­ance and says it will con­vert around 600 col­leges into vo­ca­tional schools by the end of next year. But this sup­ply­side fix doesn’t ad­dress the de­mands of China’s bur­geon­ing mid­dle class. With uni­ver­si­ties hav­ing be­come so ac­ces­si­ble, Chi­nese fam­i­lies will con­tinue to pre­fer them to what they con­sider sec­ond-class schools.

The sit­u­a­tion is un­for­tu­nate for all in­volved. In its push for univer­sal higher ed­u­ca­tion and global sta­tus, China is string­ing its young peo­ple along with the prom­ise of high­paid, mean­ing­ful em­ploy­ment af­ter grad­u­a­tion. It is a prom­ise that China will not be able to ful­fill for a very long time.

For starters, China con­fronts global eco­nomic con­di­tions that are be­yond its con­trol. China wants to shift its eco­nomic model away from man­u­fac­tur­ing and toward ser­vices, where its many grad­u­ates could be gain­fully em­ployed; but it is cur­rently locked into its po­si­tion at the bot­tom of most global value chains.

When global val­ues chains grow and new jobs are cre­ated, those jobs are dis­trib­uted ac­cord­ing to a coun­try’s com­pet­i­tive ad­van­tage. Be­cause China has long spe­cialised in low-skill tasks, this is the kind of work that will be left for Chi­nese la­bor­ers. If the smart­phone in­dus­try ex­pands, for ex­am­ple, Sil­i­con Val­ley will hire more en­gi­neers, and Shen­zhen will hire more as­sem­blers to build what those en­gi­neers de­sign.

If China wants to move up the value chain, it needs to ex­pand its tech­no­log­i­cal ca­pac­ity, which is why in­no­va­tion is at the heart of its lat­est Five-Year Plan. But most of China’s high-tech in­vest­ments so far have been abroad – in sec­tors rang­ing from elec­tron­ics and biotech­nol­ogy to soft­ware and nan­otech­nol­ogy – which won’t change its value-chain rank­ing. China could also ex­pand its tech sec­tor through home­grown en­trepreneur­ship, ex­cept that the Chi­nese econ­omy does not pro­vide easy ac­cess to credit and is ham­strung by ex­ces­sive reg­u­la­tions that make it dif­fi­cult to start a com­pet­i­tive busi­ness.

Re­struc­tur­ing the Chi­nese econ­omy is a long-term project. In the short term, China should make higher ed­u­ca­tion far more ex­clu­sive, so that it is true to its pur­pose. Chi­nese uni­ver­si­ties should pro­duce higher-qual­ity grad­u­ates at a slower rate, and all other stu­dents should ma­tric­u­late through vo­ca­tional pro­grams, which will lose their cur­rent stigma as they be­come the pri­mary ed­u­ca­tional op­tion.

The cur­rent sys­tem mis­al­lo­cates Chi­nese tal­ent, pre­vents grad­u­ates from reach­ing their full po­ten­tial, and im­pedes the econ­omy’s ca­pac­ity to as­cend global value chains. In this sense, China is mov­ing too fast. As an old Con­fu­cian proverb says, “It does not mat­ter how slowly you go, so long as you do not stop.”

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