Chief executive Li Hsu had a problem. The head of Fiber-xon, a manufacturer of components for communications networks that's headquartered in California but whose main operations are in China, spent three months interviewing for a vice president of operations. He finally landed one--who left three months later for a better offer. For another top job, Li scoured the mainland for recruits before finally poaching one from one of his Taiwan-based vendors. In China, "it's easy to recruit low-level talent," Li says. "But if you want someone who's topnotch it's hard."

China faces a critical shortage: experienced, highly skilled managers. The numbers are astounding. The country has some 25,000 state companies, 4.3 million private firms and massive industrial overcapacity. But it has too few experienced managers for even the elite firms. The consulting firm McKinsey & Co. estimates that even the relatively small number of Chinese companies trying to expand abroad will need up to 75,000 internationally experienced leaders if they want to continue to grow over the next 10 to 15 years. Currently, McKinsey estimates, there are only 3,000 to 5,000 such men and women in China. "In any type of [Chinese] company, the senior managers are not really strong enough in terms of leadership," says Luo Qun, a partner in the Shanghai office of the human-resources firm Heidrick & Struggles. "The speed of market change, foreign markets and internal markets, all those things are really becoming much more complex than even a couple of years ago. People on the ground haven't experienced those kinds of complexities."

The leadership chasm is not often cited as a hurdle for China's raging economy, but it could become one. Most foreign companies need to hire local talent to help them navigate the local market. Chinese companies could hit a staffing bottleneck in their effort to compete with Asian rivals in increasingly sophisticated markets. China's main competitor in Asia, India, has a class of CEOs far more experienced and worldly than the Middle Kingdom's.

Fast change isn't the only reason for the talent gap. Though the private sector now accounts for a third of the Chinese economy, many Chinese managers continue to run their companies according to the rules and traditions of the planned economy--in which firms produced to meet a quota, not consumer demand, and kept books that shed no light on profits. The talent pool was also severely depleted during Mao Zedong's Cultural Revolution, which interrupted the education of an entire generation. Many people who came of age in that era never caught up. In a government-sponsored survey of 5,000 CEOs and chairmen, only 40 percent said they had attended college. Of those, only 20 percent received management degrees. "In China, we are far behind the world in science and technology, but even farther behind in terms of management," says Zhao Chunjun, dean of the Tsinghua School of Economics and Management in Beijing.

Even China's best companies, many of which aim to go global, are having trouble in their top ranks. Zhang Ruimin, the chairman of Haier, which is working to establish a global name in consumer appliances, spent the early 1980s bicycling an hour back and forth from his job at a factory to cram in some management courses. Now in his early 60s, he's still studying; his staff marvels at the persistence of his efforts to master English. Georges Desvaux, a Beijing-based McKinsey consultant who works with many large Chinese companies, says many CEOs face a dilemma in going abroad: since they speak only Chinese, they sometimes send younger executives with foreign-language skills but no better handle on foreign business practices.

Many Chinese executives have come to rely on instinct and gossip to make decisions rather than formal data-gathering and analysis. "The Chinese typically rely on informal networks [to validate information]," Desvaux says. When Chinese executives go abroad, they are suddenly forced to work with people they don't know, using unfamiliar methods. And that creates tension when Chinese companies acquire overseas firms. In many ways, the Chinese managers are often less seasoned than their new employees, and need to learn from them.

Li Dongsheng, chairman of TCL electronics, is one of China's most high-profile business leaders. He says he's had strange experiences in the United States and Europe, where TCL has bought companies. Even Li feels uncomfortable when his foreign managers whip out charts and talk about the problems their units face in ways that seem dry and intangible--and then volunteer solutions as if there were no need to consult higher-ups. "Globalization for the company is exciting. But of course, there's a lot of pressure and a lot of things we have to learn from scratch," Li says. "When we have meetings with executives from China, they say something is good or bad and I know what's going on. But with the foreign managers, they say, 'We're facing a loss of $10 million and here's the answer,' and I can't tell if they're right."

Finding good young managers is difficult, given the environment in which they grew up. Victor Yuan, founder of Horizon Research, a Beijing marketing firm, says he spends more money than ever training young managers in global business practices. For example, he forbids paying commissions to potential clients, even though his employees object that failing to pay these kickbacks, which are common in China, costs them business. "American and European and even Indian managers have more experience in international business, and they have a better sense of ethics," Yuan says.

The shortage of good managers means that poaching is rife. To promote loyalty, L'Oreal cosmetics has given almost all of its 7,000 jobs in China to local Chinese. It has moved its Asian training center from Singapore to Shanghai and started a mentoring program to drive home the message that Chinese managers have a bright future with the company. "These people are very requested in the market, so we have to train all the time, we have to pay attention, we have to develop their careers," says L'Oreal China president Paolo Gasparrini. "Don't forget that other companies are growing here. There is no other country in the world where so many companies are entering the market every year."

Such support can be critical for Chinese managers struggling to find their way. When Wang Zhou got his mechanical-engineering degree in 1986, the government assigned him to a factory in the city of Tianjin, north of Beijing. In 1994, after China opened to foreign investment, Wang decided to take a chance in the private sector and got a job as a supervisor for Motorola. It was a shock. He couldn't take the long hours and had no idea how to manage his 30 subordinates after years of following orders in the state sector. After a six-month probation, he told his manager he couldn't adjust to foreign ways and was leaving. But his manager spent four hours explaining how he had suffered similar difficulties when he joined Motorola 20 years before. "He told me his whole personal story. It was unbelievable," says Wang, who stayed on for seven more years and is now a manager for the Finnish company Elcoteq.

Many managers are trying to adapt by going back to school. Demand for M.B.A.s has risen sharply. In 1991, when the Chinese government began licensing M.B.A. programs, there were nine. Today, 95 schools offer them, and they are scrambling to modernize. Many team up with Western universities, flying in professors--or sending their own abroad for retraining. Tsinghua University and others now offer an executive M.B.A. program for more-senior managers who want to go to school part time. Prestigious Beijing University now runs the Beijing International M.B.A. program, which accepts about 250 students each year and offers classes almost identical to those taught in the United States.

Harvard Business School hosted 70 Chinese B-school professors last week, teaching them how to write better case studies, develop more interactive class materials and stimulate class discussion. This is a sea change for universities that for years demanded that students memorize the mantras of state-planning czars from the former Soviet Union. "Everything is right in the process of changing, and these schools feel very much like the American schools were in 1975," says F. Warren McFarlan, a Harvard professor who's worked extensively with professors from China's top business schools. "I'm actually just struck by the extraordinary progress that's been made in the last 20 years."

So are many students. In 2001, China had no virtually no venture capitalists, and Liu Erhai had no experience in the field. So he entered Beijing University's International M.B.A. program to learn from internationally trained professors. He had never experienced classes like these: "You do case studies, you discuss with your classmates, share your point of view, maybe you challenge your professor!" recalls Liu, now 37 and a senior vice president at Legend Capital in Beijing.

Others say Chinese business schools are still behind the times. Yu Bing began looking for a school in 1999 after 12 years at Lenovo, the computer maker, where he is now a vice president. At the time, his growing exposure to Western companies made him see how much more research and thought they put into issues such as product pricing, and how "arbitrary" Lenovo's decision-making process was in comparison. "We didn't know as much as we should about the Western world, especially formal management of big enterprises," Yu says. He enrolled in Beijing University's Guanghua School of Management, but quit after only three months, annoyed by professors who "didn't know anything about management and only taught according to textbooks."

Still, Lenovo executives have not given up on their mission to unearth talent any way they can. Yu later attended the Cheung Kong School of Business, a new Beijing institution funded by Hong Kong billionaire and business legend Li Ka-shing. Yu figured that a school with ties to Li would understand business (and it did). This May, Lenovo bought IBM's nearly defunct PC business, saying quite candidly that much of the attraction was not in the business itself. It was access to IBM managerial know-how. China can't possibly train enough managers fast enough to close its gap, so it might as well acquire them.