Over the last 35 years, China's strong and sustained output growth-averaging more than 9.5% annually-has driven the miraculous transformation of a rural, command economy into a global economic superpower. In fact, according to the World Bank's most recent calculation of the purchasing power of aggregate income, China is about to overtake the United States as the world's largest economy. But, in terms of the quality and sustainability of its growth model, China still has a long way to go. Despite its remarkable rise, China's per capita income, at US$10,057 (adjusted for purchasing power) in 2011, ranks 99th in the world-roughly one-fifth of US per capita income of $49,782. And reaching high-income status is no easy feat.
Strong human capital is critical to enable China to escape this fate. But China's labor force currently lacks the skills needed to support high-tech, high-value industries. Changing this will require comprehensive education reform that expands and improves opportunities for children, while strengthening skills training for adults. Clearly, China needs to reform its higher-education institutions, including technical and vocational training programs. And the children of migrant workers in urban areas must be granted full access to the education system. Such efforts to reduce educational disparities would help to address income inequality-a significant threat to China's future economic growth.
China's education challenge also extends to quality. Inadequate education is a major driver of rising unemployment among China's senior secondary and tertiary graduates, not to mention their declining wage premium. This can be remedied through better financing, more effective recruitment and compensation policies, and more decentralised decision-making in school administrations.
Finally, though some evidence suggests that there is an over-supply of university graduates in China, ongoing demographic and sectorial shifts mean that China will encounter a supply deficit of 24 million highly skilled graduates of universities or higher-level vocational schools by 2020. To fill this gap, China must upgrade its fragmented and ineffective technical-and vocational-training programs. To ensure that its labor force can meet the demands of a rapidly changing economic and technological environment, China must build a more inclusive, higher quality education system. Without it, China may not be the world's number one economy for long.