Exchange Rates & Beer Prices in Taiwan

Karl and I were bullshitting about various currency stuff while drinking a bunch of beer (always the best way to get meaningful insights) and we were thinking about how the soaring Euro should be making imported European beers more expensive in Taiwan relative to American beers.

I'm going to try to put some numbers to this and see what we find out. This post is a work in progress, and suggestions in the comments would be welcome.

Beer: Heineken
Country of Origin: Holland (in the EU)
Description: A nasty skunk beer that makes my tummy hurt.
Version: 330 ml bottle?

Current 7-11 Retail Price: NT$ 48?
Historical 7-11 Retail Price: NT$ 45?

Taiwan taxes on beer: NT$ ?? / L
(I can find that out at home...I have the info there.)

Wholesale price was close to NT$ 800/ case a few years ago...NT$ 33.33 / bottle.

This is depressing

Edward Wolff, a professor of economics at NYUy, thinks that the middle class in a major city includes people in households with incomes from $40,000 to $100,000. From there, up to $200,000, people are "upper middle class." ... People making $200,000 to $350,000, he says, could be considered rich, but they still have to slog to work every day. To be really rich, in Wolff's scholarly judgment, you need not only an income upwards of $350,000 a year -- which happens to be right about the point where today's top marginal income tax rate of 35% kicks in -- you also need at least $10 million in accumulated wealth.

I thought having a million bucks makes someone rich. Now its 10 million. Plus an income of 350,000 a year.

At least Obama is polite enough to consider US$ 97,000 a year as "upper class."

So I'll take Obama's definition as my goal, thank you.

Yahoo Headline

Minorities hit hardest by U.S. mortgage crisis, studies find

Someone needs to tell the headline writer that "minorities hardest hit" is now as cliche as Bus Plunge. I almost laughed at that headline!

Worried about the Dollar, Debt, Defict, etc.?

This blog post / article might make you feel better.

Of course, the fear of Japan taking over the world economically did lead to the movie Rising Sun which had that awesome shot of a guy eating sushi off a hooker's ass.

Yahoo Headlines

Bush ally defeated in Australia election

John Howard was Australia's prime minister since 1996.

Australia has been a US ally since WW II.

It almost seems a bit rude to not use the man's own name in the headline.

Not to mention if you are Rudd, aren't you a bit bummed to be the passive actor in the headline. He won the election after all. Wouldn't "Rudd defeats Bush ally in Australia election" keep the same anti-Bush flavor while letting the actual winner and new PM of Australia get in the headline?

In any case, I will be interested to see how a former diplomat who speaks Mandarin changes the world. Should we expect Chinese pressure on Sudan now over Darfur?

Rudd probably doesn't smoke, so I'd say he will have little clout in Beijing.

The China Price goes up.

I've been seeing big, big increases in our pricing from factories in the Shenzhen area and some price increases from other parts of China. I've heard two different companies claim they are considering sourcing some items from Taiwan again as the China prices are getting higher.

There are still ridiculous prices to be find in some other parts of China, particularly northern China where you can supposedly buy stainless steel at 1/2 the price of southern China and other such nonsense.* But I have to imagine the raw material cost increases, the increase in wages and benefits, the elimination of tax rebates, and the steady drip drip of the currency will eventually catch up to them as well.

I sincerely hope the era of the crazy pricing is over, because it was really annoying to find people who could sell finished products below your raw material costs, etc.

*Of course, there is also now fake stainless steel made in China. Seriously, after I heard they could make fake eggs in China, nothing surprises me anymore.

Yahoo Headline

Huckabee rides evangelical wave in Iowa

SURF'S UP DUDE!

Living Abroad as Foreign Policy Experience

Barrack Obama is claiming that spending 4 years growing up in Indonesia gives him some foreign policy experience that Hillary Clinton doesn't have. (Hillary shot back that she had gone to Beijing and kicked some commie ass at a UN convention on women.)

I think living abroad as a child could have provided some advantage to Obama in the foreign policy realm. I'd be interested if he still can speak Bahasa Indonesia or not.

In his political autobiography, "He describes making friends easily, becoming fluent in Indonesian in just six months and melding quite easily into the very foreign fabric of Jakarta." but of course some reporter has to track down an opposing opinion "Teachers, former playmates and friends recall a boy who never fully grasped their language."

Six months to pretty good fluency is not impossible with Indonesian, and the teachers are probably remembering the early months because those would be the most memorable. His former playmates seem to be your typical junior high school assholes from the reporting.

At the very least, he was exposed to some third world poverty, different culture, religions, etc. Since he had to take religious classes at school in Indonesia, he also probably knows the difference between a Sunni as a Shia, and in a world where Silvester Reyes as the House Intelligence Committee Chairman guesses Al Qaeda is predominantly Shiite, you take what you can get....except....

Silvester Reyes speaks Spanish and fought in Vietnam, so he too was exposed to foreign cultures and has seen 3rd world poverty up close and personal, too. (If being in a Huey can be consider up close and/or personal.)

So while I want to say Obama's experiences have helped him, I have to worry that when he's dealing with the Nepali crisis of 2010, he's going to offend the Maoist leader by starting the meeting with a prayer or something. That's damned cynical, but he is a politician after all. I'd still count his school years in Jakarta as a small plus on his experience side, and its actually probably worth more simply as PR with Indonesia.

Meanwhile, Barrack Obama is a smoker. Now, that could be very useful in foreign affairs. When he's meeting with the Chinese on trade, he can offer a Marlboro to Hu JinTao at a critical juncture. That's usually good for at least one minor concession. Though if Obama's switched to Merit Ultra Lights, it would be war for sure.

I have to include this quote from the interview with Reyes,:.

And Hezbollah? I asked him. What are they?
“Hezbollah. Uh, Hezbollah...”
He laughed again, shifting in his seat.
“Why do you ask me these questions at five o’clock? Can I answer in Spanish? Do you speak Spanish?”
“Poquito,” I said—a little.
“Poquito?! “ He laughed again.
“Go ahead,” I said, talk to me about Sunnis and Shia in Spanish.
Reyes: “Well, I, uh....”

You know, Reyes, that might have worked with Larry King.

(BTW, I am aware that Republican members of the same committee did worse and that FBI counter-terrorism officials failed as well. Luckily they were your typical dumb Southern monoglots who nobody expects much from anyways.)

Taiwan's Economy

On Taiwan's economy, i.e. is it good or bad and is it all the DPP's fault?

How is Taiwan's economy doing?

Subjectively of course, many Taiwanese will probably compare it to the glory days in the 70's and 80's just as American's sometimes look at the 50's that way. In which case, the answer will be that the economy is doing very bad indeed, and you will cluck you tongue in despair as you drive your Lexus SUV through massive traffic jams of other people in expensive vehicles all trying to get into Costco to buy European chocolates and American beef.

Objectively I guess we could to compare it to Korea or some other rising middle-income country. (Comparisons to China would not be smart as growth from a low base is easier to achieve and China is a bit of a special case where quantity has a quality all of its own.)

2007 GDP Growth
Taiwan: +4.3%
Korea +5.0%

2008 GDP Growth (forecast)
Taiwan: +4.4%
Korea +4.7%

Industrial Production (Sep.)
Taiwan: +8.0%
Korea: +0.3%

2007 Prices (forecast):
Taiwan: +1.1% (But a year ago Taiwan was -1.2%)
Korea: +2.5% (a year ago Korea was +2.2%

Unemployment:
Taiwan: 3.9%
South Korea: 3.2%

(all numbers from this week's Economist.)

I am pretty much underwhelmed by the differences in these numbers, but I guess Taiwan could buck up and try to add about 0.5% to some of these figures, but there might be some factors that affect Taiwan's numbers that we should be aware of:

Due to language and cultural ties, Taiwanese businesses have more opportunities to invest in China than Korean companies. This might lead to some investment that otherwise would be done in Taiwan to be done in China. An example would be a Taipei-based upscale coffee shop that chooses to expand in Shanghai and other Chinese cities rather than in southern Taiwan.

Taiwanese companies may tend to operate in more labor-intensive fields than Korea's large more capital intensive conglomerates, thus forcing them to go abroad at a faster rate.

Taiwanese individuals also have more opportunities to work in China, even at foreign firms that have nothing to do with Taiwan, thus affecting Taiwan's GDP numbers, which only counts Taiwan's domestic production. 300,000 Taiwanese professionals now work in China according to this article. That's 1.3% of Taiwan's population and an even bigger chunk of its labor force!

Is it the DPP's fault?

Politicians have much less control over the economy than people think. It is true that Taiwan's stock market (not to be confused with Taiwan's economy) is overly sensitive to political events, but people like my wife who blame Abian for the fall of the stock market in 2001 without noticing the coincidental bursting of the US dot.com bubble are fooling themselves as to the power of the president.

In fact, the DPP being a political worry to many people, might actually have kept the NT$ lower in value, thus giving Taiwan's export industries a decent boost.

Current Account Balance as a % of GDP (2007)
Taiwan: +6.4%
Korea: +0.4%

Of course, the DPP has been spending some money, too.

Budget Balance as a % of GDP (2007)
Taiwan -2.0%
Korea +0.4%

What could the government realistically do to help Taiwan's economy?

Direct links with China: This policy might have slowed down investment in China a few years ago, but the result now is a net loss to Taiwan. Taiwanese who live and work in China come back to Taiwan less and less as it is too much of a hassle. They end up living in China full time and spending their money there.

Taiwan should not only allow direct links with China, but drastically deregulate the airline industry to make a flight from Xiamen to Taichung cost about the same as flying Southwest from San Francisco to San Diego. That would give Taiwanese investors in China an incentive to fly home more, spending their money in Taiwan. You could literally work at the factory during the week and come home for the week-end to Taiwan. Quick and cheap direct flights would allow some Taiwanese based businesses to gain China business. And it would spur more Chinese tourism and investment in Taiwan, too.

Free up imports: I am not sure how closed Taiwan is to Chinese products, but I would suggest removing any barriers to Chinese goods, providing health and safety issues are met. It does no good to protect portions of the economy from foreign competition and in fact can hurt the overall economy. I personally know that some production of camera tripods ended up being switched from Taiwan to China simply because you could not easily import cheap camera bags from China to include with the tripod. So Taiwan protected its domestic bag industry but destroyed its camera tripod export industry.

Tax Reform: Tax localized businesses and reduce taxes on "movable" business by re-weighting the tax system towards a consumption based tax. The noodle vendor currently pays no taxes beyond the 5% VAT while the factory and its owners pays that as well as corporate tax and income tax. If the factory moves to China and uses an offshore shell company, they can pay far less in taxes than if they stay in Taiwan. The noodle vendor cannot move to China. With the move to a consumption based tax, you will increase tax revenues from the grey market while keeping some of the industrial base in Taiwan for as long as possible. Yes, it's not very progressive, but seeing as how my local breakfast truck owner drives a BMW, I have to wonder how progressive it is to let a large portion of Taiwan's economy pay less than their fair share in taxes. (Wait, maybe he scrupulously reports his income to the tax authorities?) Actually, the DPP have a plan to reduce taxes. I wonder if it actually got passed? Taiwan is also making moves to tax their citizens' global incomes and watch out for the use of offshore companies. Great. Maybe they could enforce the income tax on noodle vendors, too? Get their ID card. Check the tax records and see if they pay any. I am going to hazard a guess that they will under-report their income. I could be wrong. Let's find out.

Alternative choice would be to go to a flat income tax, like many Eastern European countries have adopted to good effect. These can be made more progressive than a consumption tax, but I have worries about enforcement.

Okay, that's enough for a blog post. My portion on the taxes is probably the least well-thought out portion, so go easy there tiger.

I did find an interesting report on Taiwan that might point to areas Taiwan could improve.