India?s woes in lacking a large body of skilled manpower capable of serving the manufacturing sector are well known. Many identify this, quite rightly, as a critical handicap for medium and small manufacturers in expanding capacities and obtaining benefits of large-scale production. While India will continue to suffer from this problem in the foreseeable future?until its technical training capacity is augmented nearly four times?one would hardly assume a shortage of skilled labour to be a problem in China.
However strange it appears, China is indeed encountering the problem. And the sector facing the biggest skill deficit is the financial services.
One can, of course, legitimately argue that the ?factory? of the world, as China is popularly referred to, is not expected to have an abundance of people competent in handling services. Years of dedicated thrust on manufacturing ensured that industrial production, particularly the export-oriented chunk, never suffered from a paucity of labour well-skilled in basic manufacturing functions. But with China slowly casting a keen eye on value-added, knowledge-intensive services for future growth, the skill gaps in the workforce are showing up. Shanghai?s aspirations of maturing into a global financial services centre ? la London, New York, Hong Kong and Singapore, might take time to fructify due to the unavailability of adequate finance professionals.
Ironically, while China was enormously effective in ensuring the first fundamental of successful industrial transformation?shifting surplus labour from agriculture and primary occupations to labour-intensive manufacturing?it is falling behind in effecting a similar transformation from manufacturing to services. Skill capacities are relatively better in those services that are complementary to manufacturing, such as physical or ?hard? infrastructure (for example, roads) or shipping. But services demanding strategically innovative capabilities for sustained growth?such as finance and software development?are the ones where skill gaps are obvious.
There are several reasons behind China not having enough professionals for supporting its burgeoning financial services industry. A major one among these is the relatively under-developed state of its financial markets. Given its large economic size, it is surprising to note the sheer volume and frequency of commercial transactions in China that still take place in cash. Even in Shanghai, Beijing and Tianjin, not to mention other provincial capitals, using plastic money is difficult in most retail outlets. The domestic financial system has not developed to the extent it should have to support non-liquid transactions. Such developments would have created demand for skilled professionals and would have spurred the growth of such capacities. Indeed, China?s under-developed capital market and the lack of an adequate number of sophisticated financial instruments has led to household savings getting locked up in idle cash, which hardly has any outlet other than flowing into real estate, exacerbating property prices.
As China strives to build facilities that will enable foreign companies to get listed in the mainland, it needs to boost capacities in financial intermediation. In an economy where the financial sector is overwhelmingly dominated by domestic state-owned banks, with assets of foreign banks accounting for barely 2% of the total, unless the range and quality of intermediation improves, foreign financial enterprises and private equity funds (domestic or foreign) will shy away from the market. This is again where the lack of skilled people is conspicuous. Very few industry professionals have the experience of working in private sector banks. Non-banking financial intermediation is hardly present in China and possibilities of professionals having such skills are even more remote.
Over the last decade and more, business and finance education has expanded rapidly in China. Universities like Tsinghua and Fudan have excellent capacities in this respect. However, a controlled and under-developed domestic financial market has ensured that opportunities for capable professionals are limited; as a result, the pass-outs have been mostly migrating to other financial centres. On the other hand, there are several Chinese students studying finance in reputed institutions in various parts of the world. They, too, are mostly reluctant to return due to a lack of enough challenging and exciting opportunities at home.
Opportunities would surely increase if initiatives like the Shanghai International Board for listing foreign companies take off. What is not clear, though, is whether these would be enough to foster the growth of trained finance professionals in China. Other global financial centres, particularly neighbouring Hong Kong and Singapore, will continue to remain more attractive, not only because of competitive tax rates and a greater global orientation, but also because of greater cosmopolitanism. China?s financial sector not only has to overcome its own limitations to attract more talent, it also has to compete against cultures created by its peers.
The author is a visiting senior research fellow at the Institute of South Asian Studies in the National University of Singapore. These are his personal views
