.png)
China has surpassed the United States to become the richest nation in the world as global wealth tripled over the past two decades, according to a new report by the research arm of consultants McKinsey & Co. The report has been prepared after examining the national balance sheets of 10 countries, representing more than 60 percent of world income. In an interview with Bloomberg TV, Jan Mischke, a partner at the McKinsey Global Institute in Zurich, said, “We are now wealthier than we have ever been.” China’s wealth jumped to $120 trillion in 2020 from just $7 trillion in 2000. This marks a jump of $113 trillion in 20 years, helping the nation surpass the United States in terms of net worth. During the same period, the US saw its net worth more than double to $90 trillion. However, the nation could not beat China due to muted increases in property prices.
The report by McKinsey & Co also indicated the steep rise in net worth over the past two decades has outstripped the increase in global gross domestic product and has been fuelled by skyrocketing property prices as a result of declining interest rates.
The research found that asset prices are almost 50 percent above their long-run average relative to income. That raises questions about the sustainability of the wealth boom. For instance, the rising real estate values are making it impossible for so many people to buy homes. This also increased the risk of a financial crisis like the housing bubble that ravaged the US in 2008 as more people will be forced to borrow to buy houses.
Recent trends emerging from China are also alarming, as the country’s high real estate prices have led to lower sales and many major property developers are defaulting. The recent episode involving China’s Evergrande Group is one example of how high property prices could ultimately hurt the country’s economy. In such a scenario, the report suggests that the world’s wealth needs to find its way into more productive investments, which can help in expanding global GDP more purposefully.
So, what are the side effects of such a steep rise?
The steep rise in net worth over the past two decades has outstripped the increase in global gross domestic product and has been fuelled by ballooning property prices pumped up by declining interest rates, according to McKinsey. It found that asset prices are almost 50% above their long-run average relative to income. That raises questions about the sustainability of the wealth boom. “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.” Surging real-estate values can make homeownership unaffordable for many people and increase the risk of a financial crisis -- like the one that hit the US in 2008 after a housing bubble burst. China could potentially run into similar trouble over the debt of property developers like the China Evergrande Group.
The ideal resolution would be for the world’s wealth to find its way into more productive investments that expand global GDP, according to the report. The nightmare scenario would be a collapse in asset prices that could erase as much as one-third of global wealth, bringing it more in line with world income.
Will it remain that way?
In 2020, a report predicted that China will overtake the US to become the world's largest economy by 2028, five years earlier than previously forecast. The UK-based Centre for Economics and Business Research (CEBR) said China's "skillful" management of Covid-19 would boost its relative growth compared to the US and Europe in coming years.
Although China was the first country hit by Covid-19, it controlled the disease through swift and extremely strict action, meaning it did not need to repeat economically paralyzing lockdowns as European countries have done.
The US economy, by contrast, has been hit hard by the world's worst coronavirus epidemic in terms of sheer numbers. More than 330,000 people have died in the US and there have been some 18.5 million confirmed cases.
In conclusion, we can say that the economic damage has been cushioned by monetary policy and a huge fiscal stimulus, but political disagreements over a new stimulus package could leave around 14 million Americans without unemployment benefit payments in the upcoming years.
--- Atreyee Panja
Comentarios