When it comes to China's labor markets, we talk not only about demand but also about supply. China now faces the dilemma of having a large labor force while lacking skilled workers and experienced professionals.

Mind the skills gap… The pitfalls in China’s labor market are evident.

A fresh report by Fudan University, Tsinghua University and J.P. Morgan shows that China is facing a serious shortfall between skills demand and supply.

Leaders from academia, industry and government discussed the workforce challenge at the J.P. Morgan-Asia Society symposium in Beijing on Thursday. It came at a time when China is shifting towards a knowledge-based economy.

China is transitioning up the value chain from being the "world’s factory" for low-end products to high-end technology and services industries. That has led to a greater demand for labor with upgraded skills.

Data from the Ministry of Human Resources and Social Security shows that skilled workers account for only about 19% of China's entire workforce, with highly skilled workers making up a mere 5%.

The growth of China's service industry has led to greater demand for professionals. The sector accounted for more than 50% of GDP for the first time last year. Service industries such as IT, software, accounting, and finance, are expected to grow and absorb a significant number of professionals in the future.

On the labor supply side, one problem in China is that the skills of graduates often do not match the market demand. That's because the graduates often have unrealistic career expectations and are unprepared for the job market, which leads to a high turnover rate.

Closing the skills gap has become a top priority.

"Our training is not sufficient, we need to start from the basis of education and training," said Yuan Zhigang, distinguished prof., Fudan University.

"We always have to ask whether a worker has special technical skills or general technical skills? If their skills are not developed, then the government has to assume more responsibility and help."

J.P. Morgan says that more than 50% of global CEOs have difficulties finding suitable and trained workers, which could limit company growth prospects.

That’s why the investment bank has launched a new workforce initiative.

To narrow the gap, the Chinese government has taken such steps as cutting bureaucracy, supporting innovation and entrepreneurship, closing redundant factories and breaking the monopolies of state-owned enterprises.

China's "New Normal" now also places greater emphasis on entrepreneurship and innovation, with 2.5 percent of GDP allocated to research and development by 2020.