What Is a College Degree Worth in China?
Why many Chinese graduates are unable to capitalize on their education, while wages for low-skill workers rise.Reform the Private Sector
December 4, 2010, 12:15 AM
Yasheng Huang is professor of international management at Sloan School of Management, Massachusetts Institute of Technology. He is the author of “Capitalism With Chinese Characteristics.”
The expansion of China's higher education system has frequently been mentioned in connection to the lackluster earnings of its college graduates. But the supply-side explanation is at best incomplete and at worst misleading.
In 1998, China enrolled about one million college students; in 2008 this figure was more than six million. The supply-side explanation assumes that the 1998 enrollment number was just right and that subsequent expansion outpaced the needs of the Chinese economy.
The more important part of the story lies on the demand side. Despite all the hoopla that foreign analysts have heaped on China’s growth, the economy remains driven by manual labor, low-cost and low-margin manufacturing.
While China is currently producing knowledge at an impressive rate, the vast majority of the knowledge production takes place in research institutes and academic institutions, rather than in firms. Knowledge production requires an elite but an extraordinarily small number of workers. As a result, it cannot absorb many college graduates.
The next source of demand for college graduates is government agencies, but China already has one of the largest -- if not the largest -- bureaucracy in the world. The base is already so big that it is unlikely to grow even more. In fact, now hundreds and even thousands of Chinese college graduates compete with one another fiercely for one civil service position.
As for China’s corporate sector, it is also not a huge source of demand for college graduates. Although China spends a lot of money on research and development, most of that spending takes place within government-sponsored research institutions, not within firms. The part of the corporate sector that employs college graduates has to do with finance, marketing and human resource management functions.
However, Chinese firms are extremely "top-light" -- that is, they have many workers but very few managers. The reason is that many of the Chinese firms are really factories. They receive export contracts and specifications and then they produce products accordingly. There is very little need for them to do their own marketing and product development.
Finally, the service sector is the Achilles’ heels of the Chinese economy. It is very weak and small, much lower, in terms of ratio to G.D.P., than India, United States, Japan and European countries. In fact, China’s service sector -- in relationship to G.D.P. -- makes China closer to oil producing countries in the Middle East rather than to any normal economy.
The reasons for the managerial underdevelopment of Chinese corporate sector and its small service sector are very complex but they all have to do with a distorted financial regulatory environment faced by Chinese private-sector firms.
The supply of Chinese college graduates is only “excessive” relative to the underdevelopment of its private sector and there is little possibility for change unless China undertakes bold reforms.
In 1998, China enrolled about one million college students; in 2008 this figure was more than six million. The supply-side explanation assumes that the 1998 enrollment number was just right and that subsequent expansion outpaced the needs of the Chinese economy.
Most 'knowledge production' takes place in research institutes, which require very few workers, rather than in companies, which would absorb many graduates.
While China is currently producing knowledge at an impressive rate, the vast majority of the knowledge production takes place in research institutes and academic institutions, rather than in firms. Knowledge production requires an elite but an extraordinarily small number of workers. As a result, it cannot absorb many college graduates.
The next source of demand for college graduates is government agencies, but China already has one of the largest -- if not the largest -- bureaucracy in the world. The base is already so big that it is unlikely to grow even more. In fact, now hundreds and even thousands of Chinese college graduates compete with one another fiercely for one civil service position.
As for China’s corporate sector, it is also not a huge source of demand for college graduates. Although China spends a lot of money on research and development, most of that spending takes place within government-sponsored research institutions, not within firms. The part of the corporate sector that employs college graduates has to do with finance, marketing and human resource management functions.
Chinese firms are 'top-light' -- they have a lot of workers but few managers -- and the service sector is very weak.
Finally, the service sector is the Achilles’ heels of the Chinese economy. It is very weak and small, much lower, in terms of ratio to G.D.P., than India, United States, Japan and European countries. In fact, China’s service sector -- in relationship to G.D.P. -- makes China closer to oil producing countries in the Middle East rather than to any normal economy.
The reasons for the managerial underdevelopment of Chinese corporate sector and its small service sector are very complex but they all have to do with a distorted financial regulatory environment faced by Chinese private-sector firms.
The supply of Chinese college graduates is only “excessive” relative to the underdevelopment of its private sector and there is little possibility for change unless China undertakes bold reforms.
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