China Must Create Shared Global Wealth

HONG KONG – The OECD is projecting an uneven K-shaped economic recovery from the pandemic in 2021. Richer countries with more extensive vaccine rollouts that can afford to reopen and reflate their economies will do so. Poorer economies will struggle to stay healthy and avoid debt crises. But the mantra that “no one is safe until everyone is” highlights the need to spread health, wealth, and self-respect to all. An increasingly prosperous China can and should play a central role in this effort.

Whereas the World Bank estimates that the pandemic may drive up to 150 million additional people globally below the poverty line of $1.90 per day, billionaires everywhere have become richer during the crisis. A 2020 report by UBS and PwC indicated that the global number of billionaires had increased to 2,189, with their combined wealth rising to $10.2 trillion, mainly owing to higher returns on technology stocks.

Meanwhile, Credit Suisse estimates that global household wealth stood at $400 trillion in June 2020, a more than threefold increase from $117.9 trillion at the end of 2000. Chinese household wealth rose remarkably fast, from 3.2% of the global total in 2000 to 17.7% by mid-2020. Over the same period, the United States’ share dropped from 36.2% to 29.4%, and Europe’s from 29.3% to 25.2%, while India’s rose from 1.1% to 3.5%. But the benefits of rising wealth have not been equally shared, as almost all countries’ Gini coefficient – which measures inequality – has worsened.

Yet, while the number of Chinese billionaires has risen sharply due to property and tech booms, the gap between Chinese and US median wealth levels is narrowing. In 2000, the median wealth per Chinese adult was $2,193, or 4.8% of the US level, according to Credit Suisse. By mid-2019, it had risen 9.5 times, to $20,942, or 31.8% of the American median of $65,904.

Moreover, although Chinese per capita debt rose over those two decades, it was equal to only 21% of median wealth in mid-2019. In the US, by contrast, per capita debt amounted to 95% of Americans’ median wealth in mid-2019, up from 76% in mid-2000. This faster debt increase slowed the rise in median Americans’ net wealth. These numbers confirm the findings of Angus Deaton and Anne Case that the lives of working-class Americans have deteriorated dramatically, relative not only to the top 1% of the US population but also to their Chinese counterparts.

At the macroeconomic level, data from the Chinese Academy of Social Sciences indicate that China is closing the gap with the US in terms of net national wealth even faster than in terms of GDP. After noting differences in the valuation of assets such as real estate, China’s GDP (at market exchange rates) and net national wealth were both around 12% of US levels in 2000. By 2018, China’s GDP (at $13.4 trillion, or around $10,000 per capita) had reached 65% of the US level, while its net national wealth of $88.6 trillion was 80% of the US level of $110 trillion. China’s 2018 net-wealth-to-GDP ratio of 6.6 was similar to that of France and higher than the US ratio of 5.3, and only slightly lower than Australia’s ratio of 6.8.

China’s net national wealth soared by 28%, 25.3%, and 11.5%, respectively, during the during the last three Five-Year Plans, driven by sustained high savings and investment rates of 40-50% of GDP. China’s domestic asset prices benefited from the government’s policy of moving toward market-determined prices, interest rates, and exchange rates.

Strikingly, the Chinese state owned CN¥162.8 trillion ($25 trillion), or 24.6%, of the country’s net national wealth at the end of 2019. The household sector held 77.4%, or CN¥512.6 trillion, with China having net claims on the rest of the world equal to 2% of net national wealth. In contrast, the US household sector held $117.3 trillion, or 111.7%, of US net national wealth at the end of 2019, with the balance being net debt of $10.6 trillion owed mostly by the federal government to foreign creditors.

The Chinese state increased its share of net national wealth through rapid improvements in public infrastructure that benefited ordinary people rather than just elites. High levels of state-owned assets should enable the government, in the new 14th Five-Year Plan, to recapitalize the pension and social-security sector, effectively transferring wealth to low-income workers.

Moreover, with 90% of households now owning homes, and real wages having increased by about 3% per year for a decade, China can now rely on consumption as its main growth engine. This explains why Chinese policymakers are less afraid of economic decoupling from the US than American policymakers may assume. At the same time, China benefits from globalization, so it has little interest in attacking the global order (or the US).

Those who argue that rising gross debt levels pose a danger to China should note that its debt (like Japan’s) is mostly domestic, while the country is a net lender to the world. This contrasts with the US net liability to the world of 11.7% of its net wealth, or over one-half of its GDP and rising. A high level of debt matters only if there are no assets to back it. Through decisive actions to control firms’ debt, the Chinese corporate leverage ratio declined from 160.4% in the first quarter of 2017 to 151% by the end of 2019.

With an aging population but growing wealth, China must address the common global challenges of social inequality and climate change. Shared prosperity is shared peace. No one is truly prosperous if prosperity is insufficiently shared. China thus has every reason to be a responsible global actor by tackling its own social and climate problems, instead of diverting resources to stoke a rivalry with the US.

With greater wealth comes greater social responsibility. In 2019, the combined net wealth of the US and China reached 227% of global GDP. These two superpowers need to stop quarreling and start solving global problems together.

Andrew Sheng is Distinguished Fellow at the Asia Global Institute at the University of Hong Kong and a member of the UNEP Advisory Council on Sustainable Finance. Xiao Geng, Chairman of the Hong Kong Institution for International Finance, is a professor and Director of the Research Institute of Maritime Silk-Road at Peking University HSBC Business School.