Leaving behind the country that dominated the financial sector for several decades, China has moved forward to become the richest country in the world, as per the recent report of McKinsey and Co.
The research arm of consultants stated in their new report that global wealth tripled in the last 2 decades, helping China multiple its finances by several times. The nation, which previously recorded a wealth of just $7 trillion in 2000, witnessed it scaling to $120 trillion in 2020. In 2001, China had joined the World Trade Organization, which accelerated its economic growth.
Though the US too saw a tremendous increase in its net worth with over double its previous value, it remained at $90 trillion.
Speaking about the per cent rise in global wealth, a partner at the McKinsey Global Institute in Zurich, Jan Mischke, said in an interview, “We are now wealthier than we have ever been.” The company’s study included the data of national balance sheets from 10 countries, which represents over 60% of the total world income.
As per the report, the global wealth increased from $156 trillion in 2000 to $514 trillion in 2020- with China contributing to nearly one-third of this rise.
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Notably, the wealth increase is majorly being witnessed in the richer households only as both the countries reported that over two-thirds of the net finances is owned by the richest 10% people there. The report further mentioned that the shares of these richest are only increasing by the day.
68% of the global wealth is attributed to real estate/properties, the study showed, adding that the balance is maintained by other commodities like machinery, equipment, infrastructure, and reasonably less but also by so-called intangibles- intellectual property and other patents.
This accelerated net worth is a result of increased property prices, which in turn was fuelled by low-interest rates. It has eventually also exceeded the global GDP increase, McKinsey said.
However, uncertainty lingers around the sustainability of this sudden wealth rise as asset prices are found to be increased by nearly 50% when compared to their long-run average relative to income.
“Net worth via price increases above and beyond inflation is questionable in so many ways. It comes with all kinds of side effects,” Mr Mischke said.
There are fears of the 2008 history repeating in the US when the housing bubble had burst. Similar situations seem to be emerging as increasing real-estate prices can make houses unaffordable for people to buy. This also brings the risk of a financial crisis, much like the above 2008 one. China too will not be able to dodge this trouble.
Finding more sustainable and productive investments to increase global GDP would be the world’s ideal aid, the report said.
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