Over the previous two decades, global wealth has quadrupled, with China leading the way and surpassing the United States as the world’s wealthiest country.
That’s one of the conclusions drawn from a recent analysis by McKinsey & Co.’s research department, which looked at the national financial sheets of ten nations accounting for more than 60% of global revenue.
Jan Mischke, a partner at the McKinsey Global Institute in Zurich, claimed in an interview that “we are currently wealthy than we have ever been.”
According to the report, global net worth grew from $156 trillion in 2000 to $514 trillion in 2020. Nearly a third of the rise came from China. Its wealth soared from $7 trillion in 2000, the year before it joined the World Trade Organization, to $120 trillion in 2010, accelerating its economic rise.
The wealthiest 10% of the population
The United States’ net worth more than doubled throughout the time, reaching $90 trillion, despite more moderate rises in housing values.
According to the research, the richest 10% of families in both countries — the world’s two largest economies — own more than two-thirds of the wealth, and their proportion is growing.
According to McKinsey, real estate accounts for 68 percent of worldwide net wealth. Infrastructure, machinery, and equipment, as well as, to a lesser extent, so-called intangibles like intellectual property and patents, hold the balance.
Because financial assets are effectively countered by liabilities, they are not included in global wealth estimates. For example, a corporate bond owned by an individual investor constitutes an I.O.U. by that business.
According to McKinsey, the high rise in net worth over the last two decades has outpaced the expansion in global gross domestic product, and has been propelled by soaring housing values powered by low lending rates. It discovered that asset values are about 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 respects, increasing net worth through price rises above and beyond inflation is problematic,” Mischke said. “It has a slew of negative side effects.”
Rising real-estate values can make house ownership expensive for many individuals, raising the likelihood of a financial catastrophe like the one that rocked the United States in 2008 after a housing bubble burst. China may face similar problems as a result of the debts of property developers such as China Evergrande Group.
According to the paper, the ideal answer would be for the world’s riches to flow into more productive investments that boost global GDP. A fall in asset values, which could wipe out up to a third of global wealth and put it in line with global income, would be the worst-case scenario.