China's Investment in Education Seen Accelerating Overall Economic Development

Policies contribute to competiveness, but could widen regional divide, MAPI reports

Arlington, VA — June 12, 2008 — China's increasing investment in its educational system will accelerate the move toward rapid wage growth, higher levels of consumer demand, slowing population growth, and overall economic development, according to a new report from the Manufacturers Alliance/MAPI.

The report, "China's Educational Performance: Implications for Global Competitiveness, Social Stability and Long-Term Development," is the latest in a series of MAPI research notes on the evolution of the Chinese economy and its impact on the emerging global economic order.

Economist and report author Cliff Waldman notes that since the 1990s, when China made higher education a priority, the share of graduates from senior secondary schools who continued on in higher education has risen significantly, from nearly 50 percent in 1995 to 75 percent by 2006.

China's progress in higher education enrollment places it in the midrange of the enrollment status of major developing and industrialized nations. The gross enrollment ratio in tertiary education reached 20 percent in 2005 from 6 percent in 1999. China's percentage is above India's 11 percent and Vietnam's 16 percent, yet remains well behind that of Japan at 55 percent and the United States at 83 percent.

Still, the United States and Japan have reason for closely monitoring China's progress, especially in the important engineering discipline, in which both countries find skill shortages. In 2006, 36 percent of Chinese undergraduate degrees and 37 percent of graduate degrees were awarded in engineering, a linchpin in any technologically sophisticated economy.

Clearly, China's double-digit gross domestic product and manufacturing growth rates have created a very strong demand for, and now supply of, engineers, MAPI reports. Comparable data for 2004 show that only 6.2 percent of U.S. undergraduate degrees were in engineering. This, Waldman says, should serve as a "wake-up call" for the United States and other industrialized powers to invest in science and engineering education.

"Research has shown that the growth in the science and engineering work force is one key element contributing to growth in product and process innovation," he said.

The report notes that China was ahead of other East Asian nations in decentralizing its school system, shifting more responsibility to local governments. While the full effect is yet unknown, Waldman agrees with other researchers that success may at least in part depend on the fiscal health and stability of individual provinces. This, however, might present challenges because the wealthier provinces are investing more in education than the poorer ones.

"The fact that the regional investment and attainment dynamic appears to be at least somewhat income-sensitive may ironically suggest that the current education structure could widen China's troublesome regional inequality through downstream impacts on the work force and innovation," Waldman said. "In essence, China's education policy is a paradox. It is moving in the direction of raising its global human capital competitiveness. But it also appears to be exacerbating the worrisome regional divide."

Finally, the report discusses the impact of education investment on labor market and demographic trends. There is evidence that the positive impact of education on labor market prospects and wages has been increasing over time in China.

"Efficient and productive education investments will only accelerate the already speedy upward climb of Chinese wages, particularly for skilled workers," Waldman concludes.