Economic Transformation and Structural Change Has Resulted in a Skills Mismatch in China: J.P. Morgan – Tsinghua & Fudan University Study

Press Release

Beijing - As China undergoes macroeconomic reform and structural change, it has resulted in a skills mismatch in the labor market. The quality of labor and the speed of training required to equip future employees with the correct skills needed for the country’s growth sectors must be addressed in order to ensure the sustainability of its economic growth.

These key findings are the result of year-long research study conducted by Tsinghua and Fudan University, in partnership with the global financial services firm J.P. Morgan. The report, entitled Skills Shortages in the Chinese Labor Market, examines the skill supply and demand issues in China’s labor market and explores ways to solve the challenges this presents.

The report highlights the gap between the supply and demand for highly skilled labor, and regional differences in the type of skills required at a time when businesses across China are facing an acute skills shortage. Two particular challenges identified by the study are the shortage of employees with skills and relevant training with regards to international management and strategic planning, and skill deficits encountered by enterprises that need their industrial businesses to evolve and modernize.

“J.P. Morgan has been in China for 95 years, we have longstanding commitment to help strengthen economic opportunities and drive more inclusive economic growth through our philanthropic initiatives, such as our programs around workforce readiness, small business development and financial capability,” said David Li, Chairman & CEO of J.P. Morgan China. “We are happy to partner with Tsinghua University and Fudan University on this research project, which is a testimony of our ongoing efforts to leverage our global expertise and resources in workforce readiness to help China resolve the skills gap issue.”

Greater demand for labor with upgraded skills
According to the research, as a result of China is moving up the value chain in terms of the products it is now producing and providing, it has led to greater demand for labor with upgraded skills and competence. Data from the Ministry of Human Resources and Social Security shows that skilled workers account for only about 19% of the entire workforce, with highly skilled workers constituting about 5%.

As China transitions from exporting lower cost goods to developing modern service industries and sectors focused on IT, software, accounting, finance, marketing, and customer management, a significant number of professionals will be absorbed into these areas.

The research also shows that the demand for skilled workers differs widely across the country. Eastern China has more demand for highly skilled workers, but the ample skills supply typically balances demand. Although demand for high-skill workers in the western regions of China is not as high as in the east, the gap is larger because of a smaller labor supply.

Amongst the several thousand enterprises surveyed in this research, a key finding is the acute shortage of workers with international management and long-term planning skills, as China’s companies look to expand overseas.

Skills shortages that vary across firms is another issue identified in the research. Domestic companies in China claim to have more severe shortages in skills related to capital management, internet services and research and development, compared with companies from Hong Kong, Macao, Taiwan, and other foreign companies. Small and medium size firms tend to experience intense shortages of skilled workers for strategic planning and advanced technology research; while large and medium size enterprises generally experience skills shortages in areas relating to capital management and internet services.

Current labor supply does not match market demand
The research result shows that the labor supply in China suffers from two serious structural problems: low-skilled workers are not ready for automation, while the skills of high-skill workers are not what firms really need.

Analyses shows that the three groups with the greatest risk of unemployment are migrant workers aged 16–29, college graduates aged 22–24, and the middle-aged and elderly aged 45-60. Enhancing the skill levels of these three groups is the key to reducing unemployment risk and keeping China’s unemployment rate low.

Close the skills gap
With dramatic demographic and economic transitions underway, it is imperative that China closes its skills gaps. The research report provides five policy recommendations to mitigate the skills challenge:

  • Grant universities greater autonomy, promote interaction between universities and enterprises, and encourage universities and enterprises to cultivate high-skill workers together, so that the education institutions can better respond and adapt to market needs.
  • Increase workers’ access to vocational training and assist migrant workers in upgrading skills through government subsidy.
  • Establish a vocational education system with greater participation by enterprises.
  • Promote the artisanal spirit, better integrate different stages of the vocational education chain, including enrollment, education, employment, and development, and establish a more diversified modern vocational education system.
  • At a macro level, barriers to the mobility of talent should be eliminated. Under the principle of equal opportunity, the household registration, social security, and education systems, and other systems should be reformed to foster a better functioning labor market.

“We hope this systematic and comprehensive analysis of China’s labor market trends will raise the awareness about and deepen the understanding of the skills gap challenge amongst the key stakeholders, and government, business and academia should respond promptly and work together to tackle the problem while it is still manageable,” the research group from both universities concluded.

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