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China outperforms US to become world's top economic power

China outperforms US to become worlds top economic power

Beijing: China is the wealthiest nation globally, overtaking the United States, while the global wealth tripled over the last two decades, Bloomberg reported citing research. The research was conducted by consultants McKinsey & Co. which examined the national balance sheets of ten countries representing more than 60% of the world's income.

The study inferred that the world's net worth rose to 514 trillion dollars in 2020 from 156 trillion dollars in 2000, and China accounts for almost one-third of it. China's wealth boomed from 7 trillion dollars in 2000 to 120 trillion in 2020.

Meanwhile, the US witnessed its net worth more than double over the twenty years to 90 trillion dollars. In both the countries - the largest economies in the world - more than two-thirds of the wealth is held by the wealthiest 10% of households, and their share kept increasing.

McKinsey's report further says that 68% of global wealth is stored in real estate while the rest is held by infrastructure, machinery and equipment, and ultimately a lesser amount rests on 'intangibles' like intellectual property, patents etc.

However, financial assets are not counted in the calculations because they are effectively offset by liabilities, i.e., a corporate bond held by an individual investor.

The steep increase in net wealth over the twenty years has overtaken the increase in the global gross product. It has been fuelled by surging property prices pumped up by declining interest rates, McKinsey says in its report.

It found asset prices almost 50% above their long-run average relative to income, which raises doubts about the sustainability of the wealth boom. McKinsey said that net worth via price increases above and beyond inflation is questionable as it comes with all kinds of side effects.

The surging real estate values could end up making many people unable to afford home-ownership. It will also lead to a financial crisis, similar to the one in the US in 2008, after a housing bubble burst. China could also run into a similar fix over the debt of property developers like the China Evergrande Group.

The report suggests that the ideal resolution for this would be for the world's wealth to find its way into more productive investments that expand global GDP. Otherwise, the nightmare scenario would be a collapse in asset prices that could erase around one-third of global wealth, bringing it more in line with world income.

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