Does China's workforce have the communication, teamwork and self-motivation skills necessary for continued economic success? A new British Council report suggests that developing the soft skills of its workers could be one of China's biggest challenges yet.
China’s sustained and rapid rise over the last 35 years has given the country an aura of inevitability, if not quite invincibility. By raising hundreds of millions of people out of poverty and becoming the world’s second largest economy in the process, China can often appear capable of economic feats that other countries can only dream of.
Roughly one half the size of the UK’s economy in 1980, China’s annual output today is nearly four times larger than the UK’s. Put another way, China will produce more new economic activity in 2015 than all but 15 countries will produce in total output . This means that China's increase in economic activity will be larger than the total gross domestic product (GDP) of countries such as Netherlands or Turkey. The pattern will repeat year on year indefinitely. Or so we are led to believe.
But for China to continue to raise living standards at anywhere near the rate to which it has become accustomed over the last three decades, it will need to remake itself on the fly. This will require a wholesale reinvention not only of the things that China produces, but also the people who produce them.
Despite boasting the world’s largest labour force and some seven million new higher education graduates every year, China is currently facing two daunting challenges: a working-age population that has entered a seemingly terminal decline, and workers who by and large lack the skills required by the industries which stand at the heart of China’s development plans. McKinsey, a research consultancy, declared in 2013 that 'China’s companies are failing to find the highly skilled employees they need, while workers find themselves ill-prepared for the jobs that are available.' The opportunity costs for China of failing to close this skills gap could be worth more than $250 billion. But is this really the case?
There is no doubting that as China remakes its economy from one based on cheap labour and low-cost production to one more reliant on domestic consumption and higher value-added industries, it will also require higher wages, more technological imports and, above all else, a more skilled labour force. In essence, if China wants to continue to raise living standards and employ its population in higher-skilled manufacturing and service industry jobs, it will first have to ensure that its workers are up to the task.
China’s leaders are, not surprisingly, well aware of the scale of the challenge of human capital they face, and have taken action. Since 2000, the number of higher education institutions (HEIs) in China has more than doubled, the number of new higher education graduates has expanded nearly sevenfold, and the number of approved transnational education (TNE) partnerships between foreign and Chinese HEIs has grown from 59 in 2000 to more than 1,600 today. Education is seen as the key ingredient to producing a more skilled labour force, but this massive expansion in education has not allayed concerns that China may not be up to the challenge of closing its skills gap.
Hardware vs software
China, it has been said, boasts some of the world’s most impressive ‘hardware’ – high-speed railways, gleaming office towers and supercomputers – but the country’s ‘software’ has yet to catch up. Put another way, China has had more success building world-class infrastructure than world-class innovation, although this is to be expected at the country’s current state of economic development.
The hardware vs. software distinction is mirrored in China’s education system as a whole, according to interviews with human resources managers for this report, which found that 'the prevailing system has skewed the primary and secondary education system towards test preparation, leaving limited classroom time for the cultivation of analytical and creative skills.' In other words, hard skills are introduced early on and strengthened over time, while soft skills are too often left to languish.
This trade-off was largely acceptable for China so long as it was the world’s workshop, but industry in China increasingly demands employees who can see the bigger picture, manage a team and communicate effectively with partners and colleagues both in China and overseas. According to business surveys in China, wages are rising fastest at the level of middle management, where soft skills are more important for success than technical knowledge, and many firms struggle to find suitable candidates. Somewhat surprisingly, China’s skills gap is most acute in workers who are at least a few years removed from their formal education, and being asked for the first time to assume more managerial responsibilities.
This suggests that higher education institutions in China are not failing to prepare graduates to enter the workforce, but may be struggling to impart to their students the soft skills they need to get ahead. Soft skills, by their very nature, are centred on personality, meaning that they do not fit neatly in textbooks and lesson plans. In fact, to the extent that soft skills are socially imparted, teaching young people to make better team mates, managers and leaders may be a task that has to start at an earlier age and take place outside the classroom.
The growing soft skills gap in China raises the question of whether further and better education is the answer. This is doubly true for foreign education institutions, which must operate in a limited capacity and an unfamiliar environment in China.
Despite the conventional wisdom that an economy as large and rapidly developing as China’s must be suffering from wide and diverse skills gaps, the country is by and large doing an effective job of providing its students with the hard skills that can be taught in classrooms. As for the soft skills that do not fit naturally in lectures or textbooks, it is not immediately apparent what role – if any – foreign institutions can play.
The true skills gap in China may be the rarest of things: massive in scale, hard to define and nearly impossible to address. Only time will tell if China has yet another economic miracle up its sleeve; but in this instance, it may have finally met its match.
 IMF, all figures reported in current U.S. dollars.
 Includes undergraduate, postgraduate and vocational TNE programmes.
 Ministry of Education
Download the British Council report Soft skills, hard challenges to find out more about the areas where China is most in need of skills upgrades – and what opportunities this presents for the UK.