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Global net worth has trebled over the last two decades, with China accounting for a third of its growth, according to a new report.

China’s wealth rocketed to $120 trillion from a slender $7 trillion in 2000, the year before it joined the World Trade Organization, accelerating its boom.

The United States, held back by smaller real estate gains, saw its net worth double over the same period to $90 trillion.

In both countries, the world’s two largest economies, the top 10 per cent of households owned two-thirds of the wealth, the report by consultancy group McKinsey said.

‘We are now wealthier than we have ever been,’ Jan Mischke, a partner at the McKinsey Global Institute in Zurich, told Bloomberg.

China accounted for almost one third of gains in global net worth over the past two decades

China accounted for almost one third of gains in global net worth over the past two decades

China accounted for almost one third of gains in global net worth over the past two decades

A graph showing the increase in net worth from the ten countries that account for 60 per cent of global GDP

A graph showing the increase in net worth from the ten countries that account for 60 per cent of global GDP

A graph showing the increase in net worth from the ten countries that account for 60 per cent of global GDP

Global net worth has trebled over the last two decades

Global net worth has trebled over the last two decades

Global net worth has trebled over the last two decades

The report focused on ten countries that together account for about 60 per cent of global GDP: Australia, Canada, China, France, Germany, Japan, Mexico, Sweden, the United Kingdom, and the United States.

China accounted for 50 per cent of the growth in net worth since 2000, followed by the US at 22 per cent.

Japan, which accounted for 31 per cent of wealth across the ten countries 20 years ago, held just 11 per cent of the total in 2020.

A central finding of the report is that the historical link between the growth of wealth – or net worth – and GDP has been broken.

Economic growth has been slow over the last 20 years in these advanced economies, but net worth, which has long been tied to GDP, has soared relative to it.

Net worth ranged from 4.3 times GDP in the US to 8.2 times GDP in China.

This change has emerged as asset prices have shot up and interest rates have gone down.

Asset prices are now almost 50 per cent higher than the long-run average relative to income. 

Saving and investment accounted for only 28 per cent of net worth growth.

The colossal rise in asset prices, coupled with weak investment, raises serious concerns about how long global net worth can continue to grow. 

‘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.’

Booming real estate prices can make home ownership impossible for many people and increase the risk of a market crash – as happened in 2008 when the US housing bubble burst.

Recently there have been fears that the colossal debt racked up by the Evergrande real estate titan in China could precipitate such a global catastrophe.

The report’s authors say that the best resolution to the problem would be for wealth to go towards growth-enhancing investments such as sustainability, affordable housing, digital infrastructure, which then expand global GDP. 

The worst case scenario would be if asset prices collapsed, erasing up to a third of global wealth, and bringing it into line with the world’s income.

Source: Daily Mail UK

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