Over the last two decades, global wealth has tripled, 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 new report by McKinsey & Co.’s research arm, which looked at the national balance sheets of ten countries accounting for more than 60% of global income.

“We are now wealthier than we have ever been,” Jan Mischke, a partner at the McKinsey Global Institute in Zurich, said in an interview. 

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According to the study, global net worth increased from $156 trillion in 2000 to $514 trillion in 2020. China accounted for nearly a third of the increase. The country’s wealth soared to $120 trillion up from $7 trillion in 2000, the year before it joined the World Trade Organization, which accelerated its economic rise.

The United States’ net worth more than doubled over the period, to $90 trillion, despite more muted increases in property prices. According to the report, the richest 10% of households in both countries — the world’s two largest economies — own more than two-thirds of the wealth, and their share is growing. 

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According to McKinsey, real estate accounts for 68% of global net worth. 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 offset by liabilities, they are not included in global wealth calculations. For example, a corporate bond held by an individual investor represents an IOU by that company.

As per McKinsey, the steep rise in net worth over the last two decades has outpaced the rise in global gross domestic product, and has been fuelled by soaring property prices fuelled by low interest rates. It discovered that asset prices are nearly 50% higher than their long-run average when compared to income. This raises concerns about the wealth boom’s long-term viability.

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“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 home ownership unaffordable for many people, raising the risk of a financial crisis like the one that hit 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 report, the ideal solution would be for the world’s wealth to flow into more productive investments that boost global GDP. A collapse in asset prices, which could wipe out up to a third of global wealth and bring it in line with global income, would be the nothing short of a nightmare.