According to a report in Bloomberg Businessweek, more than one-quarter of this year's 6.3 million college graduates in China are unemployed, despite shortages of workers in manufacturing.

Why? Becasue the number of college graduates in China has tripled since 1998 and the Chinese economy simply isn't creating that number of jobs.

This is the problem with a state-controlled economy (as China's still is).

Reminds me of my time as an undergrad, when many of us worried about what the point of studying was when there were so many unemployed graduates in our country. If I recollect aright, in my first year, newspapers reported 60,000 unemployed doctors. In my second year, they reported 70,000 unemployed engineers. The situation for arts graduates was so bad that no one was even keeping track!

However, India was able basically to sort out that problem of over-supply by liberalising its economy (that is, loosening state control - and, in India, the economy was always less controlled than China's) as well as by encouraging entrepreneurialism (even though we still have a less-than-ideal environment for entrepreneurialism).

Three lessons for China, then:

1. There is a good basis for hope that these unemployed graduates can find gainful activity.

2. Liberalise the economy properly - stop privileging outfits of the People's Liberation Army and so-called private commpanies which are actually controlled by members of the Communist Party - grant them economic privileges only equal to those for non-members as well as for opponents of the Party.

3. Ensure that every undergrad learns entrepreneurial skills - though that will by itself produce nothing if there is not the ecosystem for encouraging entrepreneurialism (and we know all about that from the studies that have been done, for example of Silicon Valley - the ingredients consist of the right legislative environment and the availability of seed funding as well as mezzanine and further funding on a market basis, not a political basis).

Prabhu Guptara