"That is one of the crucial conclusions of a report on higher education in East Asia released last week by the World Bank.

About 6 per cent of graduates are unemployed in China, 8.5 per cent in Indonesia, and 11 per cent in the Philippines, chiefly, the report says, because they "simply do not have the right skills".

"The quantity of higher education graduates is still too low for the labour market in countries like Cambodia, China and Vietnam," the report says.

"More important than quantity, however, is quality. Across low- and middle-income East Asia, employers expect workers, particularly those with higher education, to possess the technical, behavioural and thinking skills to increase productivity and growth.

"They need the problem-solving and creative skills to support a higher value-added manufacturing sector and the business, thinking and behavioural skills for a higher productivity service sector," the report says. The bank says there are gaps in all these groups of skills in newly hired professionals across the region.

Higher education in the region excludes capable and talented students, the report says, "because of their socio-economic status, ethnicity and rural residence". Ethnic minorities are especially poorly represented.

The bank says that "a major reason higher education fails to do its job is that its institutions have been managed as disconnected individual institutions" removed from their stakeholders.

It says: "Failing to consider the links between higher education institutions and the wider world around them leads to poor performance and poor outcomes."

The report identifies five key disconnects. These are between universities and: employer skill needs; companies; training providers; schools; and teaching and research functions.

The bank urges countries in the region to support "more autonomous and accountable institutions", and to "put in place the right incentives for the private sector to thrive, ensuring links between industry and providers, and handling the interaction between domestic and international higher education".

It recommends variable fee policies, combined with effective loan schemes, as a way to mobilise private resources while protecting access for the disadvantaged. Public-private matching grant schemes are used successfully in some countries, it says.

Although they contain 70 per cent of all students in East Asia, public tertiary institutions lack the autonomy to select the staff they want and to decide on their academic programs, the bank says.

And university management does not tend to be accountable to representative university boards.

The main immediate goal of lower income countries in the region should be to address skill gaps through higher quality graduates and greater inclusiveness, the report says, while middle-income countries should make it their priority to ensure a solid skill base and a stronger capacity for innovation through skills and research.

Priorities will differ among countries. China, the World Bank says, "should continue developing its skill base and further scale up its research effort and impact".

The report says that Japan, South Korea, Hong Kong, Taiwan and Singapore are exemplars for the rest of the region in innovation. "High-income economies in East Asia are among the world's most innovative."

More than half of students in China, Japan, Singapore and Thailand, and between a third and a half of those in Hong Kong, South Korea and Taiwan, earn science and engineering degrees.

South Korea's tertiary gross enrolment ratio is one of the highest in the world, at nearly 100 per cent of the eligible age group. Japan's ratio has reached 60 per cent.

But the relatively poor performance of most low- and middle-income East Asian countries has held the average for the region below that of the industrialised world, at a "paltry" 20 per cent.

The bank says there is a close relationship between research and development and innovation. South Korea and Japan spend the highest proportion on R&D, more than 3 per cent of GDP each.

Singapore comes next with 2.6 per cent. China's rate of growth of such spending is the fastest, taking it to 1.7 per cent in 2009.

"The relatively low quality of universities in East Asia is reflected in the 2009 Times Higher Education ranking, which lists just nine East Asian universities in the top 50. The nine are in Japan, Singapore, Hong Kong, South Korea and China," the report says.

Thailand's leading university is ranked 138 in the list, Malaysia's 180, the Philippines' 262, and Indonesia's 351."