China overtakes America as richest country in the world
Delivery workers sort parcels at a makeshift logistics station near the Central Business District (CBD) during Singles’ Day shopping festival in Beijing, China Reuters
Tribune Desk
Publish : 18 Nov 2021, 07:48 PMUpdate : 18 Nov 2021, 07:49 PM
Global wealth tripled over the last two decades, with China leading the way and overtaking the US for the top spot worldwide.
That’s one of the takeaways from a new report by the research arm of consultants McKinsey & Co. that examines the national balance sheets of ten countries representing more than 60% of world income, reports Bloomberg.
“We are now wealthier than we have ever been,” Jan Mischke, a partner at the McKinsey Global Institute in Zurich, said in an interview.
Net worth worldwide rose to $514 trillion in 2020, from $156 trillion in 2000, according to the study.
China accounted for almost one-third of the increase.
Its wealth skyrocketed to $120 trillion from a mere $7 trillion in 2000, the year before it joined the World Trade Organization, speeding its economic ascent.
China's export growth slowed in October but beat forecasts, helped by booming global demand ahead of winter holiday seasons, an easing power crunch and an improvement in supply chains that had been badly disrupted by the coronavirus pandemic.
However, imports missed analysts' expectations, likely pointing to the overall weakness in domestic demand.
Outbound shipments jumped 27.1% in October from a year earlier, slower than September's 28.1% gain. Analysts polled by Reuters had forecast growth would ease to 24.5%.
Zhiwei Zhang, the chief economist at Pinpoint Asset Management, said the strong exports would help to mitigate the weakening domestic economy and give the government greater room for manoeuvre on economic policy.
"The government can afford to wait until the year-end to loosen monetary and fiscal policies, now that exports provide a buffer to smooth the economic slowdown," he said.
However, under heavy government intervention, some supply constraints have started to ease in recent weeks, including a power crunch that had been triggered by a shortage of coal, tougher emission standards and strong industrial demand.
What this means for Bangladesh
In a seminar earlier in October this year, Commerce Minister Tipu Munshi had said that China is the largest supplier of machinery and goods to Bangladesh while it is also Bangladesh’s largest trade partner.
He also cited there could have been a difficult time for the Bangladeshi RMG sector had there been no material coming from China in due time during the Covid-19 pandemic.
The commerce minister said Bangladesh enjoys almost half of its global financial relationship with China and it really means a lot for the country.
At the same program, Chinese Ambassador Li Jiming said that Bangladesh was an important participant of the Belt and Road Initiative and it was also the first country to join this initiative.
Referring to the issue of development cooperation, Jiming said everyone should keep in mind the new industrial revolution which is gaining momentum with the emergence of new business models and digital economy.
The Covid-19 pandemic has provided new opportunities to leapfrog developing countries like Bangladesh, he said.
Prof Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue (CPD), said that China has emerged as the world's largest economy, meaning its market is now the largest in the world.
"Bangladesh has to think about this aspect. Now we have to take initiatives to take advantage of the world's largest market. China imports about $2,700 billion worth of goods. Their standard of living is increasing, the size of the economy is increasing, and they are importing in large size. We have to take initiative to enter this market,” he added.
He also said that China has given Bangladesh the opportunity to export 97% of its products duty free. Bangladesh has to take advantage of this by identifying their needs and focus on exporting those products.
“We need to create an environment to attract their investment. Moreover, we should attract investments in such sectors so that products produced with Chinese investment can again be exported to China at zero duty,” Rahman added.
Richest 10%
The US, held back by more muted increases in property prices, saw its net worth more than double over the period, to $90 trillion.
In both countries -- the world’s biggest economies -- more than two-thirds of the wealth is held by the richest 10% of households, and their share has been increasing, the report said.
As computed by McKinsey, 68% of global net worth is stored in real estate.
The balance is held in such things as infrastructure, machinery and equipment and, to a much lesser extent, so-called intangibles like intellectual property and patents.
Financial assets are not counted in the global wealth calculations because they are effectively offset by liabilities: A corporate bond held by an individual investor, for instance, represents an I.O.U. by that company.
‘Side effects’
The steep rise in net worth over the past two decades has outstripped the increase in global gross domestic product and has been fueled 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 home ownership 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 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.
The report recommends that the world's wealth be invested in more productive investments that expand global GDP.
"There are different ways to interpret the expansion of balance sheets and net worth relative to GDP. It could mark an economic paradigm shift, or it could precede a reversion to the historical mean, softly or abruptly. Aiming at a soft rebalancing via faster GDP growth might well be the safest and most desirable option. To achieve that, redirecting capital to more productive and sustainable uses seems to be the economic imperative of our time, not only to support growth and the environment but also to protect our wealth and financial systems."
The ten countries that account for about 60% of global GDP are Australia, Canada, China, France, Germany, Japan, Mexico, Sweden, the United Kingdom, and the United States.
China overtakes America as richest country in the world
Global wealth tripled over the last two decades, with China leading the way and overtaking the US for the top spot worldwide.
That’s one of the takeaways from a new report by the research arm of consultants McKinsey & Co. that examines the national balance sheets of ten countries representing more than 60% of world income, reports Bloomberg.
“We are now wealthier than we have ever been,” Jan Mischke, a partner at the McKinsey Global Institute in Zurich, said in an interview.
Net worth worldwide rose to $514 trillion in 2020, from $156 trillion in 2000, according to the study.
China accounted for almost one-third of the increase.
Its wealth skyrocketed to $120 trillion from a mere $7 trillion in 2000, the year before it joined the World Trade Organization, speeding its economic ascent.
China's export growth slowed in October but beat forecasts, helped by booming global demand ahead of winter holiday seasons, an easing power crunch and an improvement in supply chains that had been badly disrupted by the coronavirus pandemic.
However, imports missed analysts' expectations, likely pointing to the overall weakness in domestic demand.
Outbound shipments jumped 27.1% in October from a year earlier, slower than September's 28.1% gain. Analysts polled by Reuters had forecast growth would ease to 24.5%.
Zhiwei Zhang, the chief economist at Pinpoint Asset Management, said the strong exports would help to mitigate the weakening domestic economy and give the government greater room for manoeuvre on economic policy.
"The government can afford to wait until the year-end to loosen monetary and fiscal policies, now that exports provide a buffer to smooth the economic slowdown," he said.
However, under heavy government intervention, some supply constraints have started to ease in recent weeks, including a power crunch that had been triggered by a shortage of coal, tougher emission standards and strong industrial demand.
What this means for Bangladesh
In a seminar earlier in October this year, Commerce Minister Tipu Munshi had said that China is the largest supplier of machinery and goods to Bangladesh while it is also Bangladesh’s largest trade partner.
He also cited there could have been a difficult time for the Bangladeshi RMG sector had there been no material coming from China in due time during the Covid-19 pandemic.
The commerce minister said Bangladesh enjoys almost half of its global financial relationship with China and it really means a lot for the country.
At the same program, Chinese Ambassador Li Jiming said that Bangladesh was an important participant of the Belt and Road Initiative and it was also the first country to join this initiative.
Referring to the issue of development cooperation, Jiming said everyone should keep in mind the new industrial revolution which is gaining momentum with the emergence of new business models and digital economy.
The Covid-19 pandemic has provided new opportunities to leapfrog developing countries like Bangladesh, he said.
Prof Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue (CPD), said that China has emerged as the world's largest economy, meaning its market is now the largest in the world.
"Bangladesh has to think about this aspect. Now we have to take initiatives to take advantage of the world's largest market. China imports about $2,700 billion worth of goods. Their standard of living is increasing, the size of the economy is increasing, and they are importing in large size. We have to take initiative to enter this market,” he added.
He also said that China has given Bangladesh the opportunity to export 97% of its products duty free. Bangladesh has to take advantage of this by identifying their needs and focus on exporting those products.
“We need to create an environment to attract their investment. Moreover, we should attract investments in such sectors so that products produced with Chinese investment can again be exported to China at zero duty,” Rahman added.
Richest 10%
The US, held back by more muted increases in property prices, saw its net worth more than double over the period, to $90 trillion.
In both countries -- the world’s biggest economies -- more than two-thirds of the wealth is held by the richest 10% of households, and their share has been increasing, the report said.
As computed by McKinsey, 68% of global net worth is stored in real estate.
The balance is held in such things as infrastructure, machinery and equipment and, to a much lesser extent, so-called intangibles like intellectual property and patents.
Financial assets are not counted in the global wealth calculations because they are effectively offset by liabilities: A corporate bond held by an individual investor, for instance, represents an I.O.U. by that company.
‘Side effects’
The steep rise in net worth over the past two decades has outstripped the increase in global gross domestic product and has been fueled 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 home ownership 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 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.
The report recommends that the world's wealth be invested in more productive investments that expand global GDP.
"There are different ways to interpret the expansion of balance sheets and net worth relative to GDP. It could mark an economic paradigm shift, or it could precede a reversion to the historical mean, softly or abruptly. Aiming at a soft rebalancing via faster GDP growth might well be the safest and most desirable option. To achieve that, redirecting capital to more productive and sustainable uses seems to be the economic imperative of our time, not only to support growth and the environment but also to protect our wealth and financial systems."
The ten countries that account for about 60% of global GDP are Australia, Canada, China, France, Germany, Japan, Mexico, Sweden, the United Kingdom, and the United States.
Saddam Hossain also contributed to this report