China overtakes the US in world wealth ranking that continues to rise

Global wealth has tripled in the past two decades, with China leading the way after overtaking the United States to rank first globally.

That is one of the conclusions of a new report from the research branch of the consultancy McKinsey & Co., which examines the national balance sheets of 10 countries that represent more than 60% of world income.

“Now we are richer than ever”Jan Mischke, a partner at the McKinsey Global Institute, in Zurich.

Net wealth worldwide rose to $ 514 trillion in 2020, up from $ 156 trillion in 2000, according to the study. China accounted for almost a third of the increase. His wealth soared to $ 120 trillion from just $ 7 trillion in 2000, the year before he joined the World Trade Organization, accelerating his economic rise.

The richest 10%

America’s net worth, held back by more moderate increases in property prices, more than doubled over the period, to $ 90 trillion.

In both countries, the world’s largest economies, more than two-thirds of wealth is held by the richest 10% of households, and their share has been increasing, the report notes.

As calculated by McKinsey, 68% of the global net worth is held in real estate. The rest is found in infrastructure, machinery, equipment and, to a much lesser extent, so-called intangibles such as intellectual property and patents.

Financial assets are not accounted for in global wealth calculations because they are offset by liabilities.

‘Side effects’

The sharp increase in net wealth over the past two decades has outpaced global gross domestic product growth and has been intensified by rising property prices driven by lower interest rates, according to McKinsey.

The firm revealed that asset prices are almost 50% above their long-term average relative to revenue. That raises questions about the sustainability of the wealth boom.

“Net wealth through price rises above and beyond inflation is questionable in many ways ”, Mischke said. “It carries all kinds of side effects.”

Rising home values ​​can make home ownership unaffordable for many people and increase the risk of a financial crisis, like the one that hit the United States in 2008 after the housing bubble burst. China could have similar debt problems from property developers like China Evergrande Group.

The ideal solution would be for the world’s wealth to flow into more productive investments that would expand global GDP, according to the report. The worst case scenario would be a collapse in asset prices that could erase up to a third of global wealth, bringing it closer to world income.