Despite its apparently vast labor supply, China faces a looming shortage of home-grown talent, with serious implications for multinationals now in China and for the growing number of Chinese companies with global ambitions, according to research released by an economics think tank on Sunday.

The McKinsey Global Institute (MGI) report said less than 10 percent of Chinese job candidates would be suitable to work in a foreign company within service and export sectors.

To avoid a talent shortage and sustain its economic ascent, China must produce more graduates fit for employment in world-class companies, local or foreign, the report said.

Commenting on the report's findings, Andrew Grant, a director of McKinsey & Company's Greater China Practice, said the looming quality labor shortage could stall economic growth and any shift from manufacturing to services.

China must dramatically increase funding for its universities, improve English-language instruction by recruiting teachers from abroad, and do more to attract home the many students who study abroad, the director said.

The yearlong study, which included interviews with 83 human resource professionals involved with hiring local graduates in low wage countries, revealed:

Out of nine occupations studied (engineers, financial workers, accountants, quantitative analysts, generalists, life science researchers, doctors, nurses and support staff), only one out of 10 Chinese job candidates would be suitable for work in a foreign company. Despite having a pool of 1.6 million engineers, only 160,000 were considered suitable.

In China, engineers' education is biased toward theory. They receive little practical experience or involvement in teamwork projects compared with graduates in developed countries.

For jobs in the eight other occupations studied, poor English skill was one of the main reasons given for rejecting Chinese job applicants.

Companies already in China and serving its fast-growing domestic market may also have difficulty finding enough suitable employees in key service and managerial occupations.

China will produce 1.1 million graduates suitable for employment in world-class service companies from 2003 to 2008. Over that period, large foreign multinationals and joint ventures alone will have to employ an additional 750,000 graduates.

In addition to frontline staff, there is an acute shortage of middle managers: Over the next 10-15 years, China's companies will need 75,000 managers who can work effectively in global environments. Today, they only have 3,000 to 5,000.

On top of the generally low suitability of Chinese graduates, they are also widely dispersed and not very mobile.

MGI was founded as a part of management consultants McKinsey & Company in 1990.

(China Daily October 11, 2005)