Education is the core of human development. It also provides an important pathway toward the accumulation of human capital. As China’s population ages, and the first demographic dividend disappears, the creation of a second kind of demographic dividend has become a matter of some urgency. Investing in education is one way to cope with China’s future crisis of insufficient labor quantity and inadequate labor quality. It is a way to accomplish the pressing demands of transitioning and upgrading China’s industrial structure, and improving national competitiveness. This chapter focuses on improving human capital. It explores how to use the new realities of China’s population structure to avoid the negative impacts caused by a decline in the rates of return on education. It looks at how to create new sources of human capital in various stages of the education process.