Chinese graduates deepen hi-tech inroads

Growing ranks of college graduates are shaking up Western manufacturers as the country moves up the value chain

PUBLISHED : Friday, 18 April, 2014, 1:17am
UPDATED : Friday, 18 April, 2014, 1:17am

Barely 26 years old, Zhang Xi has studied at an elite American university, worked for an investment bank in Hong Kong and an oil company in Beijing and now may launch an internet startup with two friends.

Zhang, a foreign movie buff who quotes lines from Forrest Gump in fluent English, symbolises a transformation of China's labour force that is minting college graduates in a country better known for its factory workers.

"We just don't want to sit on the side while all the big things are happening," she says. "There are tonnes of choices in front of young people right now."

It’s not necessarily competing head to head. They’re going to outflank us

Some of those choices may shake the global economy. Close to seven million Chinese this year will graduate from college, up from 1.1 million in 2001. By 2020, China's college-educated talent pool is expected to number 195 million people, more than the entire labour force in the United States that year.

The Chinese for more than a decade have been potent rivals to American and European manufacturers. Now, China is giving Westerners something new to worry about: a generation of workers able to compete in higher-technology endeavours. The aim is to develop service industries and shift from producing simple exports - often assembled from parts made elsewhere - to making a larger share of more sophisticated products.

To be sure, the emergence of tens of millions of additional college-educated workers will challenge China and its trading partners. Too many Chinese universities offer sub-par education and too many students fail to find jobs after graduation, potentially imperiling social stability.

Well-educated workers such as Zhang, who earned a master's degree in finance at the Massachusetts Institute of Technology, are essential to the government's plans to reorient the world's second-largest economy. As Chinese companies grow more capable - what economists call "moving up the value chain" - they will encroach on markets now dominated by advanced economies.

"We're going to have to compete with Chinese banks and Chinese insurance companies and Chinese software companies," said William Overholt, president of the Fung Global Institute in Hong Kong. "We're not used to thinking of China as a powerhouse in these areas."

That change is already happening. More than half of China's US$4.2 trillion in trade last year involved significant value added by Chinese workers, while lower-value processing trade fell below a third of the total from almost 39 per cent in 2010, according to the Ministry of Commerce.

Huang Yukon, an economist who headed the World Bank's China office from 1997 to 2004, said the proliferation of college graduates was lowering the cost of skilled labour and making China more competitive in a broader range of industries.

As rising factory wages pushed labour-intensive manufacturing to countries such as Vietnam or Bangladesh, Chinese manufacturers were taking on more complex - and lucrative - work, said Louis Kuijs, chief economist for China at Royal Bank of Scotland.

"We see a lot of upgrading of the manufacturing sector where companies do things they didn't do before," he said. "People talk about will it happen? Forget it - it's happening big time already."

Reflecting that economic maturation, Chinese exports to the US of industrial engines and related parts roughly doubled last year from 2007, while toy shipments fell 11 per cent, according to the US Census Bureau.

China was advancing along a path blazed by countries such as South Korea, Huang said. Once derided for poor quality, Korean firms such as Hyundai Motor and Samsung Electronics now boast globally competitive products.

That was only a hint of what was ahead, said Dan Breznitz, the Munk chair of innovation studies at the University of Toronto. He said China soon would have a surplus of college graduates to devote to research on fields the West was neglecting, such as power grid improvements, and innovate in the way many goods were produced.

"It's not necessarily competing head to head," Breznitz said. "They're going to outflank us."

If they do, it will be partly thanks to what globalised Chinese have learned at American universities. China sends roughly 200,000 university students to the US each year, 10 times the number of Americans who study in China.

Though expatriates still occupied most of the top Asia-Pacific regional jobs, Chinese executives who had been educated and worked abroad were making inroads, said Zhang Jin, a recruiter with Russell Reynolds Associates.

Coca-Cola said 40 per cent of its China leadership team was Chinese as were almost all the unit's managers.

Henkel, a German maker of industrial and consumer chemicals, said it was tapping a "new talent pool" of Chinese students educated abroad. "In the past year, more of our positions, from entry-level to high-level positions, are being occupied by Chinese," said a spokesman.