China has surpassed the United States to become the richest nation in the world with global wealth trebling over the past two decades, according to a report by the research arm of McKinsey & Co consultancy.
National balance sheets of 10 countries that account for over 60% of the world’s income were examined for the report. In an interview with Bloomberg TV, Jan Mischke, a partner at the McKinsey Global Institute in Zurich had 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 the report. China was at the top of the worldwide list, accounting for almost onethird 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.
Notably, in both US and China, over two-thirds of the wealth is held by the richest 10 per cent of households, and their share has been growing, according to the McKinsey & Co report quoted by Bloomberg. The report also stated that 68% of global net worth is stored in real estate and the balance is held in assets such as infrastructure, machinery and equipment and, to a much lesser extent, so-called intangibles like intellectual property and patents.
Rising real estate costs can also make homes unaffordable and increase the risk of financial crisis – like the one that hit US in 2008 and the potential trouble China faces over the debt of property developers like Evergrande Group. The report suggests that the world’s wealth needs to find its way into more productive investments.
Financial assets are not counted in the global wealth calculations because they are effectively offset by liabilities: A corporate bond held by an individual investor, for instance, represents an I.O.U. by that company.
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 ballooning property prices pumped up by declining interest rates, according to McKinsey. It found that asset prices are almost 50% above their long-run average relative to income. That raises questions about the sustainability of the wealth boom. “Net worth via price increases above and beyond inflation is questionable in so many ways,” Mischke said.