30 Jan

Why China’s Disposable Income Could Drive Leisure Demand

WRITTEN BY Shawn Bolton

Disposable income

Disposable income is the amount of money that’s available to households. It’s used for spending and saving. Disposable income is the personal income that’s left after income taxes. Disposable income is one of the key economic indicators to measure the overall state of the economy.

Real disposable income is the disposable income available to households after an adjustment has been made for price changes.

Why China’s Disposable Income Could Drive Leisure Demand

Disposable income affects casinos 

China’s urban disposable income per capita remained almost flat at 6,800 Chinese yen on a year-over-year, or YoY, basis for the three months ending in December 2014. China’s national per capita disposable income was 20,167 Chinese yen in 2014. This was a nominal growth of 10.1%—or a real increase of 8% after deducting price factors.

In terms of permanent residence, urban households’ per capita disposable income was 28,844 Chinese yen in 2014. This was a nominal growth of 9%—or a real growth of 6.8% after deducting price factors. In China, disposable personal income is reported by the National Bureau of Statistics of China.

An increase in disposable income would boost consumers buying power. It would increase the probability of consumer spending in leisure activities. Buying power increases with an increase in net income. However, it depends on the rate of inflation. We’ll discuss this in the next part of this series.

If net income rises faster than prices, the buying power will always increase. How consumers perceive their level of buying power is also an important factor to consider. Perceptions about buying power are reflected in the Consumer Confidence Index.

The above chart shows that China’s urban disposable income per capita has been rising since March 2005. This could mean that consumers have more buying power. This is positive for casino companies like Las Vegas Sands (LVS), MGM Resorts (MGM), Wynn Resorts (WYNN), and Melco Crown Entertainment (MPEL).

The VanEck Vectors Gaming ETF (BJK) has ~8.6% and 7.1% exposure to Las Vegas Sands and Wynn Resorts, respectively.

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