China has surpassed the United States to become the richest nation in the world as global wealth tripled over the past two decades, according to a new report by the research arm of consultants McKinsey & Co.
The report has been prepared after examining the national balance sheets of 10 countries, representing more than 60 per cent of world income. In an interview with Bloomberg TV, Jan Mischke, a partner at the McKinsey Global Institute in Zurich, said, “We are now wealthier than we have ever been.”
The worldwide net worth rose to $514 trillion in 2020, from $156 trillion in 2000, according to research conducted by McKinsey & Co. China emerged at the top of the worldwide list, accounting for almost one-third of the increase.
China’s wealth jumped to $120 trillion in 2020 from just $7 trillion in 2000. This marks a jump of $113 trillion in 20 years, helping the nation surpass the United States in terms of net worth.
During the same period, the US saw its net worth more than double to $90 trillion. However, the nation could not beat China due to muted increases in property prices.
RICHEST 10% DOMINATE
It is worth noting that in both the US and China, more than two-thirds of the wealth is held by the richest 10 per cent of households, and their share has been increasing, according to the McKinsey & Co report quoted by Bloomberg.
The report also indicated that 68 per cent of global net worth is stored in real estate and the balance is held in assets such as infrastructure, machinery and equipment. Intangible assets like intellectual property and patents also make up a small amount of global net worth.
It is worth mentioning that financial assets are not counted in the global wealth calculation as they are effectively offset by liabilities.
THE CONCERN OVER RISING GLOBAL WEALTH
The report by McKinsey & Co also indicated the steep rise in net worth over the past two decades has outstripped the increase in global gross domestic product and has been fuelled by skyrocketing property prices as a result of declining interest rates.
The research found that asset prices are almost 50 per cent above their long-run average relative to income. That raises questions about the sustainability of the wealth boom.
Jan Mischke told Bloomberg that there are concerns over the pattern in which global net worth has increased, highlighting how high real estate prices have contributed to it. He said, “Net worth via price increases above and beyond inflation is questionable in so many ways. It comes with all kinds of side effects.”
For instance, the rising real estate values are making it impossible for so many people to buy homes. This also increased the risk of a financial crisis like the housing bubble that ravaged the US in 2008 as more people will be forced to borrow in order to buy houses.
Recent trends emerging from China are also alarming, as the country’s high real estate prices have led to lower sales and many major property developers are defaulting. The recent episode involving China’s Evergrande Group is one example of how high property prices could ultimately hurt the country’s economy.
In such a scenario, the report suggests that the world’s wealth needs to find its way into more productive investments, which can help in expanding global GDP in a more purposeful manner.