McKinsey’s report covered 10 countries that account for 60% of the world’s income. The total net worth for the group tripled from 2000 to US$510 trillion.
China’s net wealth – the value of total assets minus liabilities – rose by a factor of 17 from US$7 trillion two decades earlier. The country accounted for 23% of the total in 2020, while the US’ share was 17%, followed by Japan, which accounted for 7%, at US$35 trillion.
The 10 countries also include France, Germany, Canada, Australia, the UK, Mexico and Sweden.
The report shows China first surpassing the US in 2013, with its net worth reaching 130% of the US last year.
Soaring asset prices are behind China’s rapid rise. The average home price in China’s major 50 cities reached 13 times above the average income, according to E-House China R&D Institute. The multiple was 10 in 2015.
Some of the money the Chinese government pumped into the economy as part of the pandemic response flowed into the real estate market.
China does not have a uniform fixed-asset tax or inheritance tax. The low cost of owning properties has prevented people from reselling their real estate, further pushing up prices.
With the belief that real estate prices do not collapse firmly ingrained in the national mindset, average home prices quintupled during the past 20 years. The overall increase was 200% for the 10 countries covered.
Cash-trapped local governments in China have come to rely on revenue from selling the rights to state-owned land to real estate developers.
The only other country that had surpassed the US was Japan, whose share of net worth reached 23% of the total in 1990, one point above the US.
That was near the end of Japan’s highflying property bubble that pushed prices so high that observers remarked that “the price of central Tokyo real estate would buy the entire US.
Japan’s net worth reached 8.3 times its GDP in 1990, just like China’s 8.2 multiple in 2020.
Japan subsequently saw its wealth diminish after the bubble burst.
Chinese President Xi Jinping too has taken steps to rein in property speculation as the public grows increasingly frustrated with high condominium prices in cities.
But sudden market tightening could shake the financial system and cause a long-term economic stagnation.
In Japan, the cap on real estate investment introduced by the finance ministry contributed to the bursting of the bubble.
The Chinese Communist Party during the Central Economic Work Conference from Dec 8-10 signalled plans to modify its real estate investment restrictions. Engineering a soft-landing of the property market is crucial for Beijing’s leadership team.