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The research department of McKinsey & Co. which analyses balance sheets of some ten countries that hold 60% of the global wealth has just released a new report with some key findings in the current economic situations, from China overtaking the US as the world’s richest nation to the global wealth growing three times in two decades, and more. Take a look :

China overtakes the USA to become the world’s richest nation

Over the last twenty years, global wealth has tripled and the change has been led by China, which accounted for almost one-third of this increase. According to the study, the net worldwide wealth rose from $156 trillion in 2000 to reach $514 trillion in 2020. In an interview, a partner at the McKinsey Global Institute, situated in Zurich, Jan Mischke said that “We are now wealthier than we ever have been.”

The ever-growing wealth of Richest 10% 

In both US and China, the richest 10% of households account for two-thirds of the wealth and it continues to grow. A computed 68% of world wealth lies in real estate while the rest in infrastructure, machinery, equipment, and a much smaller part of it is found as intellectual property and patents. China’s wealth saw a massive growth to $120 trillion in 2021, from  $7 trillion in 2000. It’s joining the World Trade Organization has been cited as an accelerator to its colossal numbers. The US on the other hand saw a muted increase in property prices, however, its net worth nearly doubled within the same period to reach $90 trillion in 2021.

The downside scenarios

Financial assets are not included in the computation for world wealth as they are balanced by liabilities. But following a steep rise in net worth in the last two decades that has gone beyond the increase in global GDP largely due to ballooning property prices and declining interest rates, the asset prices are almost 50% above their long-run average with respect to income. This questions how far will the wealth boom sustain.

This surge in real-estate prices can make home ownership unaffordable for many people and makes the risk of a financial crisis imminent. A prime example could be the of the US in 2008 after a housing bubble burst. It is being speculated that China could also have similar situations in the future owing to the debt of property developers like China Evergrande Group. Ideally, the world wealth must be put to other productive investments to expand the world GDP as a possible worst-case scenario will see the collapse of asset prices that can cause up to one-third of global wealth to vanish and the bottom line will drop to match the level of actual-world income.

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