By Jonathan Woetzel, Jeongmin Seong, Nick Leung, Joe Ngai, Li-Kai Chen, Vera Tang
After decades of reform, China today has an education system that serves the industrial economy well although gaps in access, quality, and relevance in education still need to be plugged. However, there is now an even larger challenge to meet: delivering the skills needed for a modern, digital, postindustrial economy, while instilling a new national ethos of lifelong learning, and ensuring that the system is equitable. Nothing less than a transformation of China’s education and skills-development system appears necessary. China has undertaken transformative reform before; it now needs to do so again.
Around the world, work is changing as digitization and automation spread, and many millions of people will need to raise and refresh their skills, and some to change occupations. Because of China’s sheer scale, an estimated up to one-third of the global occupational transitions needed for the future of work may be in China. If China gets this right, best practices and models could offer a helpful reference point to other economies.
In this report, the McKinsey Global Institute (MGI) assesses China’s education and training system today with an economic lens and a particular focus on the development of skills. Based on an extensive survey of best practice in China and around the world, the research finds that various pilot programs that use four levers could kick-start a systemic transformation.
China needs a skills revolution to enable continuous rises in living standards for all
A skills revolution is vital if the quality of life of the average Chinese person is to continue improving even as the nature of the economy in which they work changes. Over the past 30 years, China has achieved tenfold growth in incomes and labor productivity, and a 13x increase in GDP. Some of the key drivers behind economic growth over the past decades are now waning. The mass migration from agriculture to urban employment helped fuel rapid growth, but the pace of urbanization is slowing down. China is aging, and the working-age population is shrinking. Debt levels and costs are rising.
To sustain continuing increases in per capita GDP and wages will require rising productivity enabled by improved skills and innovation. Chinese think-tanks have simulated scenarios in which China achieves the government’s aspirations of 70 percent of the per capita GDP of high-income economies by 2050, compared with 27 percent today. The scenarios imply that China needs to achieve annual growth in per capita GDP of 4.7 percent and wage growth of 4.9 percent by 2050.
At the same time, China’s economy is undergoing rapid change. The economy is transitioning away from being led by investment and manufacturing to being driven by consumption, services, and innovation. This, along with the global rise of automation and digitization, changes the mix of skills and talent needed. If anything, digitization has accelerated in response to the COVID-19 pandemic, and therefore the need to reskill may have become even more urgent.
Specifically, China faces three transitions that in combination amount to a transformation of its labor market on an unprecedented scale (Exhibit 1).
Occupations. To 2030, up to 220 million Chinese workers may need to transition between occupations, or 30 percent of the workforce. That’s about one-third of all global transitions implied by MGI’s future of work model.
Skills. In a midpoint automation scenario, about 516 billion hours of work, or 87 days per average worker, may need to be redeployed by 2030. Demand for physical and manual, and basic cognitive skills could fall by 18 percent and 11 percent, respectively. However, demand for social and emotional, and technological skills could rise by 18 percent and 51 percent, respectively.
Equity. Labor-market and skills transitions are likely to be particularly challenging for China’s rural-urban migrants who numbered 291 million in 2019 and could reach 331 million in 2030 as China continues to urbanize. Because of China’s household registration system, many migrants lack access to services including healthcare, education, and training programs. Not only are many migrants low-paid and low-skilled, but 22 to 40 percent of their work—about 151 billion to 277 billion hours or 57 to 105 days per person—is susceptible to automation. Particular attention needs to be given to helping migrant workers make necessary transitions.
Exhibit 1
China’s education and skills-development system needs to be transformed
Over the past 30 years, China has achieved transformative change in its education system that has served the industrial economy well. But as the economy changes, so China now needs once again to reinvent its education and skills-development system to equip its people for a changing economy and a postindustrial society.
To achieve this transformation, three elements stand out, which we can summarize as the “three Es”: everyone, everything, and everywhere (Exhibit 2.)
Exhibit 2
Everyone
Over the past 30 years, while China has made much progress in delivering education for all, the focus now needs to be on moving beyond schools to ensure that China’s entire population has the skills they need. By 2030, that implies three times as many people as are enrolled in the education system today will need skills development.
Workforce training is facing challenges today from low investment by employers given increasing turnover especially among the younger generation, limited relevance to the world of work, and a lack of a sense of urgency about the importance of vocational skills training among workers. China could take action to develop competitive vocational programs to offer high-quality skills development, expand the number and capabilities of industry experts, and overcome social bias.
Not all skills development needs to be offered in formal programs. The skills-development system can encourage the development of new platforms and flexible training venues outside the school system to meet a variety of learning goals. Private institutions and employers can play a role in filling gaps and expanding access to all.
Everything
The content of education and skills development needs to develop the capabilities that equip Chinese people to thrive in a fast-evolving economy. The high cognitive (such as critical thinking and decision making), social and emotional (such as interpersonal skills and leadership), and technical skills (such as advanced data analysis) that will be in demand could amount to an additional 236 billion hours by 2030, or about 40 days per average worker. This requires investment in developing different content beyond traditional textbooks, such as case studies and hands-on projects as well as new delivery approaches such as participatory learning and experiential training.
In universities, there appears to be an unmet appetite among students for more exposure to practical skills. In one 2018 survey of graduates, 62 percent of respondents said they had insufficient practical lessons that include field studies and internship opportunities. In the case of vocational training—content is often outdated and there is a shortage of expertise among teachers. Vocational curricula have not been updated to keep pace with the changing economy.
Everywhere
Provision of education and training needs to be ubiquitous, available to all throughout their lives. Today, there are constraints on people’s ability to learn—especially migrant workers—in terms of geography, time, and money. According to official statistics, only three million migrant workers out of total 291 million took a vocational and technical program in 2019. There is a broader rural-urban divide, too, both in funding and teachers’ qualifications.
Yet to reskill China effectively, access to education and training needs to be ubiquitous. In the new system, almost all of the workforce will need to take reskilling programs of various kinds. This implies the system may need to make competitive vocational tracks more widely available and reduce current gaps between those who live in cities and those who live in rural areas. China could take an ambitious view, seeking to craft a system that is available 24/7 through far expanded use of digital technologies, and that could even be mandatory for workers, in other words, “opt out” rather than “opt in.” This could be enabled by employers vastly increasing the training of their own workers, partly supported by policy incentives.
Four levers could be used as pilot projects that kick-start a broader transformation
Managing a transformation on the scale needed and suggested is a huge task that involves all of Chinese society, and it arguably makes sense to avoid major disruption and unintended consequences by establishing best practice in relatively small-scale pilots before scaling up to the national level. A survey of best practice in China and around the world highlights four levers that could be used as the core of pilot projects that China could use to kick-start a broader transformation of the environment for learning and teaching designed to have sufficient breadth and ambition to enable continuous rising in living standards in the period to 2030 (Exhibit 3.) China has a solid foundation to leverage in order to make these pilots a success.
Exhibit 3
Digital technologies
Today, education and training is largely delivered using traditional textbook teaching. Adoption of digital technologies can enable more engaging, multichannel learning and teaching. These technologies can empower content creators to deliver “micro curricula” and make content delivery more exciting and personalized by using tools such as artificial intelligence (AI) technologies, augmented and virtual reality, and gamification. Lizhiweike (荔枝微课), an online education platform in China, offers a solution that helps people to create video clips and open classes for anyone who has a smartphone. A hybrid model that combines online and offline can broaden access to rural students.
More than 900 million people—that is virtually everyone with access to the internet—could obtain high-quality digital content to support their skills transitions. More than 2 million people—double today’s number assuming the number of users on education and training platforms follows the typical growth pattern of other technology platforms, and the ratio to content providers remains constant—could deliver microcurricula through digital platforms that are not usually covered by traditional textbook-oriented curricula. A large share of education and training hours can be enhanced by advanced technologies in a hybrid online-offline model.
China is in a good position to expand the use of digital in education and training. Adoption of innovations such as online to offline, social commerce, and live streaming has been rapid in China, and the COVID-19 pandemic accelerated their use even further. China is building a solid position in educational technology investment. In 2019, China accounted for 56 percent of global venture-capital investment in education technology.
Collaborative ecosystem
Expanded public-private partnerships can help address the gap between workforce skills and what employers need. Academia and industry can together design joint programs, drive innovative research, and improve job placement for students. Alibaba Group and Hangzhou Normal University co-founded the Alibaba Business School, which offers four bachelor’s degrees. DJI, a commercial drone maker, launched a joint innovation laboratory with the Hong Kong University of Science and Technology to drive further advances in unmanned aerial vehicle technology.
Enterprises can play a more significant role in vocational education, committing themselves to playing a part in the design of curricula, training, and recruiting while government can facilitate the collaboration among different stakeholders. China can leverage its dynamic corporate base. There are about 120 Chinese companies in the Fortune 500, and some 4,000 listed companies on the Shanghai and Shenzhen stock exchanges. We see potential for a coalition of vocational school-industry partnerships, potentially with commitment from 300,000 companies (that is, 40 percent of “above-scale” companies in the China Statistics Bureau’s classification). They could potentially cover about 11,000 secondary and higher vocational schools with 27 million students.
Enhanced vocational tracks
Vocational training could have multiple entry points so that workers can have flexibility in returning to school, receiving retraining, and pursuing higher-skill jobs. China could also make taking a vocational track more attractive to prospective high school students, for instance by expanding a “3+4” model that enables them to go directly to higher vocational or application-oriented universities without taking China’s national Gaokao test. This model is already being pioneered in China by Shandong and Zhejiang provinces. To provide more options to vocational students, this approach could be expanded to all application-oriented universities in China, including ones that the government is expecting to convert from traditional academic universities.
Vocational trainers could collaborate more with companies to gain up-to-date knowledge, and, vice versa, having more company representatives come to vocational colleges to teach. The Telkkä program in Finland and Teach Too program in the United Kingdom expand the pool of high-quality teachers by facilitating more exchange with companies through various rotational programs. China could also develop more “dual” vocational educators. By 2030, more than 80 percent of teachers of specialized courses at vocational schools could be required to have industry experience in related areas, up from today’s 32 percent for secondary and 40 percent for higher vocational schools. This is a prerequisite in German vocational schools.
Mindset shift and incentive schemes
China needs to elevate the importance of skills and develop a culture of lifelong learning. Better information on career options and skills-development paths could help an estimated 220 million people (in an early automation adoption scenario) facing occupational transitions in the period to 2030 to understand their options to develop necessary capabilities. A “micro-credential system” beyond a degree could promote a continuous learning culture. World-leading tech companies now partner with educational institutions to offer coding boot camps, for instance. Cases in the US suggest that these involve three to nine months of intensive work, at the end of which participants are deemed job-ready and often make higher than the average college graduates.
As for employers, by investing in training for their workers they can benefit from the skills they need to raise productivity. The number of “corporate universities” is already on the rise as companies find that designing courses is the best way to access skills; students benefit because they are more or less assured of a job. To scale these programs it may be necessary for the government to provide incentives through, for instance, government subsidies, co-funding training through grants or vouchers, and financial incentives through the tax system. MySkillsFuture, a government-sponsored program in Singapore, provides all citizens aged between 25 and 60 with a subsidy. China has been moving in this direction as various local governments have been offering supporting programs.
Moving China forward could require a systemic approach and deeper engagement from the private sector
Systemic transformation of the entire education and skills-development system to support lifelong learning will not only require substantial investment but also comprehensive input from all relevant stakeholders—notably with the private sector playing a much expanded and more integral role.
At the national level China has often made use of a “leading group” and other cross-functional organizational approaches to tackle complex and cross-departmental agendas. Following this approach would mean setting up a national leading group focused on the future of work with a broad membership of officials from multiple ministries. This group would in turn seek input from representatives of educational and vocational institutions, employers, and a range of subject-matter experts.
Any national plan needs to be implemented locally. China could set up local delivery units—a vehicle that it has used before—but this time dedicated to the detailed implementation of the national strategy on education and training, tailoring to local contexts, defining specific milestones, continuously monitoring progress, and holding performance dialogues. Importantly, these groups could include various stakeholders besides the government, including private-, social- and education-sector institutions.
Delivery units could, in turn, help educators be more open to collaboration with employers to better understand changing patterns in demand for skills, improve the design of curricula and strengthen pathways from education and training to employment. Teachers also need to be reskilled if they are to be effective in their use of digital technologies and adopting a hybrid offline-online model. China can further embrace incentives for educators to encourage them to experiment with new approaches to developing educational content and delivery models.
Employers, in particular those in the private sector, can also play a crucial role as educators and trainers as well as investors. Much of the reskilling can be carried out through corporate mechanisms, including, for instance, corporate universities both for internal organizations and for external players. Training programs by cohort, and collaboration with external educators can also be considered. Companies can put in place incentives for its workers to train by, for instance, making pay raises and promotion contingent on them completing courses.
Investment opportunities are emerging, too. Chinese tech players have been offering programs to grow next-generation entrepreneurs and teach the skills that the market demands. China’s education and training market has been growing rapidly at 16 percent a year since 2014 to reach a value of 3 trillion renminbi in 2019. However, the share of vocation-related training is estimated to be only 14 percent, according to iResearch data. As China shifts its focus toward workforce development, significant growth may come from the services related to lifelong learning that could provide long-term investment opportunities.
In order to kick off the journey for their company and its workers, business executives can consider a checklist of priorities to keep in mind, from identifying skills gaps and devoting more management time to the broad issue of training workers to developing partnerships with educators and ensuring that training is an integral part of companies’ government relations effort (Exhibit 4.)
Exhibit 4
China’s continued prosperity and economic dynamism as well as the livelihoods of its people hinge on wide-ranging reform to the skills of the nation. Today, China’s education and training systems are arguably oriented to an industrial economy but need reinvention for the kind of economy that is now evolving: digitized and driven by consumption, services, and innovation. The necessary transitions are huge—indeed unprecedented—requiring nothing less than a total system refresh, a hugely complex task. China begins with some strengths, including a government that has driven transformational economic reform, an adaptable population, and large and dynamic companies. Its digital economy is growing in sophistication and reach, and its people are enthusiastic adopters of digital technologies.
The work needs to start now given the scale and urgency of the task of expanding and reinventing learning and skill development throughout people’s lives—China has been engaging in educational reform for 30 years. If China successfully manages the transition, it will not only have equipped its people with the skills they need to match the demands of an economy evolving in new directions, and companies with the talent they need to drive success, but will also have handled one-third of the global transition to the future of work. If China gets this right, best practices and models could offer a helpful reference point to other economies.
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