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This article is the fourth in Foroohar’s series on Chinese business and economic developments and their effects on the global economy; find the rest of the series here.

While Americans often worry that hordes of Chinese engineers will eat their economic lunch, the Chinese look to the U.S. for the model of how to educate a 21st century workforce. This realization hit me during a recent trip to China, on which I kept hearing about how broken the Chinese educational model was, and how desperately it needed to be reformed in order for the country to move up the economic food chain and create the millions of new jobs required to avoid higher unemployment and the social unrest that often comes with it.

I saw the problem firsthand at Wuhan University, one of the top 10 schools in China. While not as elite as Peking University or Tsinghua (which are often referred to as China’s Harvard and MIT, respectively), Wuhan is certainly one of China’s Ivies. Yet while the dozen or so students I met with there were clearly bright and hard working, they had trouble thinking creatively or outside the box. One young man claimed he wanted to put his economics degree to work fixing China’s environment. But when I asked him how he might go about that — by starting a company? Lobbying the government? Using social media? — he looked confused and simply shrugged.

One reason for this sort of response might be that Chinese education typically encourages students to stay in the box and not question authority. “There is growing concern, among parents, employers and policymakers alike, that the system’s emphasis on rote learning and high-stakes exam taking does not foster the mental agility and innovative flair that the 21st century economy will need,” says a McKinsey report on the Chinese educational system and skills gap released in May. It’s a high-stakes problem. McKinsey estimates that at the lower end of the labor market (meaning factory workers with primary education or less) there will be 23 million more workers than jobs in China by 2020. Meanwhile, at the top end (workers with university degrees or vocational training) there’s an increasing talent shortage — Chinese employers will need about 24 million more workers than the country is likely to supply during the same time span. If the country doesn’t bridge the gap, the opportunity cost is likely to be $250 billion, according to McKinsey.

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The big problem is that while China is churning out plenty of university graduates, they don’t have the skills they need to satisfy potential employers — they lack technical training, can’t speak English well enough, don’t know how to work in teams or think critically, can’t problem solve creatively, and don’t have soft skills. (One employer in the McKinsey report complains, “Smiling and shaking hands; I have to teach this to people in their 20s and early 30s.”)

Victor Yuan, the head of Horizon, a Chinese polling firm, blames the overexpansion of higher education in China. “University programs here grew too quickly, and without the proper preparation of teachers and professors,” he says. “You’ve got 500 schools of finance and investment, for example, but sometimes only a single professor to teach you various topics.” Indeed, the statistics would seem to bear out his opinion: There’s a 40% unemployment rate for white collar workers in China, and multinational companies will often import workers for top positions rather than hire locals. While China graduates over 600,000 engineers a year, McKinsey Global Institutes estimates that only 1 in 10 had the skills to make it in a foreign multinational.

This “supply paradox” is being tackled in a variety of ways. Chinese who can afford it are sending their children abroad for school earlier and earlier. Indeed, the hottest area in Chinese for-profit education these days isn’t test prep for Harvard, but for Andover — rich Chinese parents want to send their children to the best boarding schools in the U.S. and the U.K.

Meanwhile, there’s an increasing push to bridge the mismatch between skills and job requirements by connecting employers with workers, a trend that mirrors what’s happening in the U.S. A private company called China Vocational Training Holdings works with carmakers to provide high-end technical training to 100,000 students a year. (Even the Chinese manufacturing sector is under pressure, as rising wages, energy costs and greater productivity in other countries mean work that was once done in China is moving elsewhere in Asia, Latin America and even back to the U.S.) A number of other programs are being set up in areas like Shanghai and Guangdong to teach migrant workers — who might once have gone to work in factories — the kind of skills more useful to China’s growing service sector, like logistics or cosmetology.

Yuan himself has set up a nonprofit organization designed to foster creativity and entrepreneurship among young people, offering students grant money for new businesses and teaching soft skills to college graduates. “When students graduate from university here, they are lost. College in China is a walled garden — they graduate, and they can’t do anything.” If the Middle Kingdom is to spur growth and avoid social discontent, it will have to make sure they don’t languish too long.

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