Moreover, higher education in China leaves much to be desired, with employer surveys revealing that graduates of upper secondary schools and universities usually lack the required technical knowledge and soft skills. For example, in 2013, more than one-third of the Chinese firms surveyed said that they struggled to recruit skilled workers, with 61 percent attributing this to a shortage of general employable skills. How, then, can China expect to achieve the export diversification and technological upgrading that it needs to move up the global value chain?

Clearly, China needs to reform its higher-education institutions, including technical and vocational training programs. At the same time, it must expand opportunities for anyone with talent to acquire high-quality secondary and tertiary education, thereby reducing substantial disparities in the accessibility and quality of higher education across regions and social groups. 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.

All of this will require increased public investment in education. As it stands, China's public investment in education, as a share of GDP, is below international standards across all levels, but especially in senior secondary and tertiary education.

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 decentralized decision-making in school administrations.

Finally, though some evidence suggests that there is an over-supply of university graduates in China, ongoing demographic and sectoral 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.

The author is professor of economics and director of the Asiatic Research Institute at Korea University, and a senior adviser for international economic affairs to former president Lee Myung-bak of South Korea.

Project Syndicate