By Kirby Chien

BEIJING, Nov 16 (Reuters) - China's fast growing economy and its move into higher value added industries is creating labour shortages that in some cases are slowing the expansion of foreign businesses there, executives said on Wednesday.

"There is a management gap that will take 10 years to fill," said Paul Reilly, the chairman and chief executive of executive recruiter Korn/Ferry International (KFY.N : Quote, Profile, Research). "There is a huge shortage."

"China produces 10,000 MBAs a year, but the problem is experience," he told reporters on the sidelines of a conference.

One problem is China's education system, which produces more engineers than any other country but emphasises theory rather than finding practical solutions, according to a recent report by McKinsey & Co.

With annual economic growth exceeding 9 percent for the past nine quarters, China has the fastest growing major economy in the world.

However, that growth has also created a sometimes desperate search for talent ranging from skilled factory workers to workers in service industries such as hotels and financial institutions.

"We have some clients who say it is their biggest obstacle to expanding in China," said Greg Savage, the chief executive of Aquent Asia Pacific, a United States-based staffing and consulting firm.

The lack of supply is pushing some salaries sky high.

"Loyalty and company culture become secondary then someone ... is offered 50 percent more," said Savage.

"It is very, very disruptive," he added.

Savage tells of one client who interviewed 1,500 people over 12 months and hired only 40. The low ratio was not only because the company had high standards but also because some people offered jobs refused them.

China's moves to develop a market-oriented economy that includes a sophisticated services industry to go along with a strong manufacturing base means that the education system also needs to produce more of the talent that companies can use.

"If China is to avoid this talent crunch and sustain its economic ascent, it must produce more graduates fit for employment in world-class companies," McKinsey said in its report.

McKinsey said that fewer than 10 percent of Chinese job candidates, on average, were suitable to work in a foreign company as engineers, accountants, quantitative analysts, life science researchers, doctors and nurses. Despite those problems, foreign companies are still pouring into China and investing billions of dollars.

Foreign direct investment into China was $48.4 billion in the first 10 months of the year, down just 2.1 percent from a year earlier. Last year set a record high of $61 billion, more than a quarter of the total $233 billion in foreign direct investment to all developing countries. (US$=8.1 yuan)