Over the last two decades, global wealth has tripled, with China leading the way and surpassing the United States as the world's wealthiest country.
McKinsey & Co.'s research arm analysed the balance sheets of ten different countries, which together account for 60% of the world's total income. The world's net worth increased
to an unprecedented $514 trillion in 2020, up from a previous net worth of $156 trillion in 2000, with China accounting for the largest chunk.
China accounts for nearly one-third of global income.
In an interview, Jan Mischke, a partner at the McKinsey Global Institute in Zurich, said, "We are now wealthier than we have ever been."
According to a new global financial data from McKinsey & Co., first reported by Bloomberg, China's wealth expanded to $120 trillion from $7 trillion in 2000, an astoundingly massive
increase from its days before joining the World Trade Organization, which accelerated its rise to power.
Meanwhile, the United States' net worth has doubled over the period, to $90 trillion, despite more muted increases in property prices.
According to the report, the richest 10% of households own more than two-thirds of the wealth in both countries, which have the world's largest economies.
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As per McKinsey, real estate accounts for 68 per cent of global net worth. The balance is held in infrastructure, machinery, and equipment, as well as, to a lesser extent, so-called intangibles
such as intellectual property and patents.
Financial assets are not included in the calculation of global wealth because they are effectively offset by liabilities. An individual investor's holding of a corporate bond, for example,
represents an IOU from that company.
The Side-effects
The sharp rise in net worth over the last twenty years has outpaced the rise in global gross domestic product and has been fueled by soaring property prices fueled by low-interest rates.
It discovered that asset prices are nearly 50% higher than their long-run average when compared to income. This raises concerns about the wealth boom's long-term viability.
"In so many ways, increasing net worth through price increases above and beyond inflation is questionable," Mischke said. "It has a slew of side effects."
Rising real-estate values can make homeownership unaffordable for many people and raise the risk of a financial crisis, such as the one that struck the United States in 2008 after a housing
bubble burst. China could face similar problems as a result of the debts of property developers such as the China Evergrande Group.
Solution?
According to the report, the ideal solution would be for the world's wealth to find its way into more productive investments that boost global GDP. The worst-case scenario would be a crash in asset prices, which could wipe out up to one-third of global wealth, bringing it more in line with global income.