Education holds the key to China's productivity drive
Gerard Burg says to overcome the decline in the workforce, the government must raise the quality of schooling, and access to it, while doing more to stop the brain drain
Increasing productivity is one of China's most critical challenges over the next few decades, as the negative effects of its demographic changes constrain the capacity for growth.
China's workforce is already declining. As a result, individuals will be required to generate greater economic value to continue the country's growth and support a growing pool of retirees.
Education is a key factor in raising the average level of productivity. New entrants to China's workforce already have around four extra years of education than those entering retirement. However, more will need to be done.
China's public spending on education has increased over the past decade - rising from around 2.1 per cent of gross domestic product in 2004 to around 3.6 per cent last year. This level lags behind the spending in the advanced economies, with the OECD average level of education spending at 5.6 per cent in 2011.
International surveys rank Chinese students as among the best performing in the world. However, there are significant disparities across the country. Schools in rural areas and poorer provinces lack the resources to provide the same quality of education as the best schools of wealthy cities.
Competition to gain access to the top schools is intense. Transparency International reports examples of bribery to secure placements - even payments to secure desks closer to the teacher. Such informal payments contribute to China's inequality problems, with otherwise deserving children from lower socio-economic groups locked out of the system.
China's hukou system has also increased the level of disadvantage. There are an estimated 20 million children of migrant workers who are unable to access their local school system, as their migrant parents lack the residential rights to access social services in their cities. The alternative is to leave school-aged children with relatives in their home provinces, and these children typically underperform in measures of educational outcomes.
Foreign observers have also expressed concerns about teaching methodology - namely, that it is focused on strict rote learning, which provides little opportunity for creativity and problem-solving - skills particularly valuable in complex employment. Improving the quality of teaching across the country is necessary to improve the performance and equity of the education system as a whole.
China's university system has improved considerably over recent decades. However, access for students from less privileged backgrounds has worsened.
And China is still not producing enough graduates to support the shift to a higher-value growth model. In 2012, fewer than 4 per cent of China's population held a tertiary qualification, compared with almost 33 per cent on average in advanced economies.
Since the late 1970s, over three million Chinese have studied overseas, with Ministry of Education estimates suggesting that only one-third have returned to China. Foreign education has benefited the students, but not necessarily the country. The brain drain includes domestic graduates as well.
Improving the quality of China's education system, and access to it, may prove critical to the country's longer-term growth prospects, with higher productivity offsetting the declining working-age population. There are likely to be opportunities for foreign educational institutions to assist in the development of the education sector, but Chinese authorities will have to ensure the benefits are accrued domestically, by slowing the brain drain.
Gerard Burg is senior economist, Asia, at the National Australia Bank