According to a new report from the research division of consultant McKinsey & Co.
The report was drawn up after examining the national balance sheets of 10 countries, which represent more than 60 percent of the world’s income. In an interview with Bloomberg TV, Jan Mischke, a partner at the McKinsey Global Institute in Zurich, said: “We are now richer than we have ever been.”
Global wealth rose to $514 trillion in 2020, from $156 trillion in 2000, according to research conducted by McKinsey & Co. China topped the global list, accounting for nearly a third of the increase.
China’s wealth rose to $120 trillion in 2020, from just $7 trillion in 2000. This marks a $113 trillion jump in 20 years, surpassing the United States in terms of net worth.
Over the same period, the US saw its net worth more than double to $90 trillion. However, the country was unable to beat China due to moderate increases in real estate prices.
RICHEST 10% DOMINATE
It’s worth noting that in both the US and China, more than two-thirds of wealth is held by the richest 10 percent of households, and their share has increased, according to the McKinsey & Co report cited by Bloomberg.
The report also indicated that 68 percent of global wealth is stored in real estate, with the rest held in assets such as infrastructure, machinery and equipment. Intangible assets such as intellectual property and patents also make up a small portion of global wealth.
It is worth noting that financial assets are not included in the global net worth calculation as they are effectively offset by liabilities.
THE CONCERNS ABOUT RISING GLOBAL WEALTH
The McKinsey & Co report also indicated that the surge in wealth over the past two decades has outpaced growth in global gross domestic product and has been fueled by skyrocketing real estate prices driven by falling interest rates.
The survey found that asset prices relative to income are nearly 50 percent above their long-term average. This raises questions about the sustainability of the increase in prosperity.
Jan Mischke told Bloomberg there are concerns about the pattern in which global wealth has increased, highlighting how high real estate prices have contributed. He said: “Net value through price increases beyond inflation is questionable in so many ways. It has all kinds of side effects.”
For example, rising real estate values make it impossible for so many people to buy a home. This also increased the risk of a financial crisis like the housing bubble that hit the US in 2008, as more people will have to borrow to buy homes.
Recent trends out of China are also alarming, as high real estate prices in the country have led to lower sales and many major property developers defaulting. The recent episode involving China’s Evergrande Group is an example of how high real estate prices can ultimately hurt the country’s economy.
In such a scenario, the report suggests that the world’s wealth must find its way into more productive investment, which can help expand global GDP in a more targeted way.