Hankscraft has been making industrial motors and mechanized pumps for more than 50 years in Reedsburg, Wisconsin. The company came to China just three years ago but already has twice as many employees here as it has at home.

Jonathan Funkhouser, who is general manager of Hankscraft's China operations and who makes the top-level technology decisions, thought it was going to be hard to get all the government approvals he would need in order to set up shop in China. But that turned out to be the easy part. "Finding good employees and managers was the most difficult," he says.

That's not the only problem. Salaries have been climbing fast -- 20 percent to 30 percent a year on average for IT managers, Funkhouser says. And turnover is high. During the past three years, he has hired five critical IT employees and lost three of them. "It's been a very challenging thing for us," he says.

Finding people with specialized IT skills, such as in-depth knowledge of secure systems, can also be tricky, says Celine Zhang, China human resources manager at Paris-based Hachette Filipacchi Medias SA. Hachette is the world's largest magazine publisher, with titles such as Elle and Marie Claire and a presence in 39 countries.

Despite widely read reports of waves of IT talent graduating from Chinese universities, the picture on the ground is quite different, say businesspeople operating in the country. The truth is that in China, a good IT professional is hard to find, and good IT managers are even scarcer.

On the plus side, says Zhang, IT outsourcing companies have been coming to China recently, gradually deepening the talent pool. "There are quite a few IT consulting companies in the market now, and they have trained a lot of IT personnel," she says.

One such company is BearingPoint. Matthew Ding, a managing director for financial services at BearingPoint's Shanghai office, says firms like his also have to deal with the skills gap. Because the IT consulting industry in China is only about five years old, there's a lack of experienced project managers, he says.

Part of the problem is the Chinese educational system. Ding, Funkhouser and others observe that China's universities are heavy on theory and light on real-world practice, leaving employers to make up the difference.

Ding, for example, has had to become an interpersonal skills mentor. He had to teach one manager to delegate, to communicate with his team members and not to tell others to shut up. "Normally, we don't hire managers; we grow them," Ding says.

But not every company can afford that luxury, and an inexperienced manager can delay a project or cause it to fail, he says.

That's one reason why salaries for IT managers are rising faster than entry-level wages. According to Pieter Tsiknas, director of the Beijing office of Shanghai-based recruiting firm SearchBank, experienced midlevel IT managers typically make between US$1,200 and US$1,500 a month, compared with just US$500 for an entry-level staffer.

Tough Times for Talent

The convergence of three phenomena in China's overheated economy is causing demand for skilled IT professionals to outpace supply, says Garry Wang, a consultant at Hewitt Associates Consulting Co.'s Shanghai office. Continued foreign investment in China, growth of existing multinational operations in China and the attempts of Chinese companies to go global are all widening the skills gap.

But there are cultural reasons as well. Many older Chinese, for example, have never experienced a market economy. "They have never been in a competitive environment," says Wang.

Moreover, studies show that Chinese employees of all ages are rarely qualified to work for a multinational company. According to a survey of 83 human resources professionals by the San Francisco-based McKinsey Global Institute, less than 10% of Chinese job candidates, on average, are suitable for work in a foreign company.

In an October 2005 report, "Addressing China's Looming Talent Shortage," McKinsey blamed much of the IT talent shortfall on the educational system and geography. The report noted that among other problems, graduates lacked conversational English skills and only a third of the 1.7 million Chinese who graduated from college in 2003 lived close to where the jobs were.