Daily Management Review

US Falls Behind China In Wealth Growth Over Last Two Decades, Finds Mckinsey Report


US Falls Behind China In Wealth Growth Over Last Two Decades, Finds Mckinsey Report
A new study recently found that net worth globally has increased from $156 trillion in 2000 to $514 trillion in 2020. And almost one third of that rise was seen in China in the same period.
A new rese4rahc report prepared by the research arm of consultants McKinsey & Co. that researches the national balance sheets of ten countries that account for more than 60 per cent of the global wealth found that over the last two decades, total global wealth increased more than three times and the highest growth in net wealth was seen in China which pushed the country to the top spot of the list surpassing the United States. 
“We are now wealthier than we have ever been," Jan Mischke, a partner at the McKinsey Global Institute in Zurich, said in an interview.
In 2000, the total wealth of China was at only $7 trillion which increased to $120 trillion by 2020. China had joined the World Trade Organization in 2001 and since then its economy has been on a steep upward curve.
The growth of wealth in the US on the other hand, was slowed down by rise in property prices, and over the period examined, its net worth grew by more than two times to $90 trillion.
The richest 10 per cent of the households in both the US and China - the two largest economies of the world, had control over more than two-thirds of the wealth and the report noted that the wealth of such households has been steadily increasing over the report period.
Investments in real estate accounted for more than 68 per cent of the net worth of the world, the McKinsey report found. The rest of the wealth is held things such as infrastructure, machinery, and equipment and, in so-called intangibles like such as intellectual property and patents, but to a much lesser extent.
The report did not consider financial assets as a part of the global wealth since their value is they are essentially negated by the liabilities attached to it. For example, a corporate bond owned by a person as an investment also represents an I.O.U. by that company.
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.
“Net worth via price increases above and beyond inflation is questionable in so many ways," Mischke said. “It comes with all kinds of 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 the 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 more in line with global income, would be the worst-case scenario.