I recently helped a client hire some engineers in China. The company had first tried to fill the jobs themselves, but had no success. When we started working on the job the hiring manager was shocked at hearing that candidates expected increases of 30 percent or more to accept a job, and even at that level there were not a lot of them. This was supposed to be easy — there are more than a billion people in the country. Chinese universities produce more than 2.5 million college graduates every year, including 30,000 doctorates and 650,000 engineers. How can it be difficult to fill any job?
Despite these amazing numbers, China is short of talent. Some of the shortage is the result of high demand from thousands of companies from all over the world setting up shop in China, to make, buy, or sell stuff. But much of the problem stems from two factors: education, or the lack of, and demographics. The World Economic Forum estimates that demand for talent in China will grow by 5% annually through 2020. Meeting that demand will require the country to spend 4% of GDP on education.
The government’s own estimates put spending at 2.7%, or an annual shortfall of $65 billion.
Demographics Are Destiny
There’s an old joke about China. A teacher tells kids that the country’s population is so large that if everyone was lined up and marched off a cliff the line would never come to an end. One kid asks why that is and the teacher replies that the population would grow faster than people could march off the cliff. The kid thinks about this then says, “how could it, if they’re marching?” (I said it was old, not that it was funny). I don’t know if they verified this in China before they introduced the one-child policy, but while it has slowed population growth, the policy has created other problems.
The lack of children means that the growth of the workforce has slowed to a crawl in many categories, and overall the workforce is projected to start shrinking as early as next year. By 2050 China’s workforce will shrink as a share of the population from 72% to 61%, or about 143 million workers.
To offset this decline the Chinese are already working aggressively to bring their own professionals home, and meeting some success. More than 40% of Chinese students studying in U.S. universities now return home, up from about 15% 10 years ago. The government is also offering professionals with specialized skills — scientists, engineers, entrepreneurs — large cash incentives to come to China.
But countering these efforts are a desire among increasing numbers of highly qualified and upper income Chinese to leave the country, citing a desire to provide better living conditions for their family and to protect their assets.
The Education Illusion
Chinese students are supposedly very bright, at least as measured by standardized test scores, which are among the highest in the world. And that’s precisely the problem: the system is geared toward producing students who get high scores on standardized tests. So when it comes to exams, Chinese students are stellar performers. But when it comes to other barometers of success, they fall short. It’s the equivalent of American students spending four or five years preparing for the SAT.
The obsession with test-taking leaves many Chinese graduates ill-prepared for the job market. A McKinsey study found that 44 percent of Chinese companies reported that ill-prepared talent limited their global ambitions. And all those years of study don’t deliver much in value; the Chinese Academy of Social Sciences reports that the average college graduate earns just 300 yuan — about $45 — more than average migrant worker.
The reasons why it’s hard to fill jobs in China include many other reasons. Chinese citizens can’t just up and leave for another city any time they feel like it. The government has strict limits on mobility. Local governments can restrict subsidized housing, education, and health insurance to long-standing residents, making the cost of relocation very expensive for many.
And there’s also the housing problem. The U.S isn’t the only place where people’s ability to relocate is limited by their houses. Prosperity in China has allowed lots of people to buy a house, but this has also reduced their mobility. The rental market is not well developed, and falling prices make it difficult for people to sell at a profit.
So what’s a recruiter to do?
We advise companies to adapt their employment practices to match the culture. The two elements of employment that Chinese value the most include career advancement and supplementing retirement savings. Neither is particularly high on the list of things that most U.S. companies focus on, but they’re critical in China. Credit the one-child policy for both — career advancement is valued because the current generation has grown up with two parents and four grandparents (often living in the same house). One doesn’t have to be a child psychologist to figure out why they’re called “Little Emperors.”
Ironically, this same generation will have few dependents to take care of them, so retirement savings will be needed. It’s also better to hire for potential than exact fit with requirements. It’s not going to get easier.