Sustainable growth comes from better educated workforce, not more labor: Bank

China's shrinking labor pool is eroding the demographic dividend that propelled the country's stellar economic rise in the past few decades, but there's a silver lining -- the smaller workforce is becoming better educated.

Economists at Standard Chartered Bank said in a report on Monday that quality matters more than quantity as the world's second largest economy transitions from its old growth model, based on cheap labor, to one more reliant on technology and innovation.

Rising wages in the past decade and a labor force shrinkage since 2012 has cut deep into China's traditional cost advantage in low-end manufacturing.

China's work force, those between 16 to 60 years old, has dropped to 911 million last year from 937 million in 2012, data from the National Bureau of Statistics show.

While the old demographic dividend is waning, economists say a new one is emerging: The work force is becoming more educated thanks to rapid expansion of college education over the past two decades.

More college graduates are entering the workforce each year, up from 1.06 million in 2000 to 7.49 million last year. Standard Chartered estimates that by 2030, 27 percent of China's labor force will have a college degree, similar to the level in Germany, France and the United Kingdom today, compared with less than 4 percent in 2010.

Rising share of college educated labor, according to the bank, will make China better positioned to compete in high-end manufacturing and modern services to drive sustainable growth in the future.

Success in moving up the industrial chain will cushion the impact from a shrinking labor force and provide better job opportunities for the country's aspiring college graduates.

"The days of receiving a big impact on growth from the number of people is going to diminish. What you are going to need is to focus on productivity," said Sudhir Shetty, World Bank chief economist for East Asia and Pacific Region, during a briefing in Beijing on Asia's rapidly aging population last year.

This will require companies to adopt more skill-intensive technology and invest in services that meet the demands of the country's swelling middle class, so that the new generation of educated labor will have better paying jobs and consume more.

But these will only come if the government can effectively push a wide range of reforms in capital markets, labor, land and local government finances. If all these are delivered, Standard Chartered said China will enjoy a relatively fast economic growth of over 5 percent by 2030. Endi