China Has the NSA For Lunch

December 26, 2007:

The U.S. recently revealed that China had done some major damage to the NSA (National Security Agency) via penetration of the NSA facility in Hawaii (which concentrates on monitoring China.) The Chinese effort was two-fold. First, the Chinese set up a Chinese translation service in Hawaii, and managed to make it appear as American owned (and able to pass a security check). Eventually, this translation company got NSA contracts to translate material obtained from China. The operators of the translation of the company were able to pass the NSA material back to China, letting the Chinese know what information the NSA was picking up, which helped the Chinese figure out how the NSA was getting certain information, and with what. This made it easier to prevent the NSA from getting certain information, or setting up a trap, to feed the NSA false information.

But there was more. Many of the NSA employees were Chinese-American. The Chinese set up a recruiting operation, that was so carefully established and run, that it was several years before U.S. counter-intelligence caught on, and shut it down.

Using a translation service? Maybe for open source intelligence like newspapers, but for real intel like intercepts? Yikes. You'd even imagine computer translation would be close enough and far safer than using an outside source.

I don't know what to do about Chinese-Americans in these situations, but I know if I was China, I'd fly a false flag operation and claim to be Taiwanese intelligence and ask the Taiwanese-Americans to help Taiwan (all the while actually passing this stuff back to China.)

For the ethnic Chinese, appeal to nationalism.

For non-Chinese, drop a honey pot or some money. I can see the cables back to Beijing "Will need two agents. Subject likes three-ways. Also, prefers C cup or larger. Must be willing to do girl on girl. Suggest hiring agents out to porn production company on the side to reduce our costs. p.s. don't forget to include two cartons of Pandas this time. We are dying here with only Marb Lights!"

By the way, this is why we only sell dumbed-down versions of stuff to Taiwan. Wayyyyy too many leaks back to China. One father-son team in the Taiwan navy were selling US equipment documentation on CDs to China for NTD 500 each.

Technology vs. China

China has been making low cost solar panels for a few years now. They mainly sell to sun-drenched Germany which has some crazy subsidy scheme for home owners installing solar panels.

This coupled with the rise of Green Technology as the new hot investment area has led to these companies in China absorbing massive amounts of capital. I believe one company raised US$ 2 billion in capital a year before they even produced a single product.

Obviously, China thinks it has some advantage for making solar panels, which I suspect probably involves the low cost of labor and perhaps some other factors. But we keep hearing how the Green economy is going to be GREAT for Western companies. Well, we shall see, because Nanosolar, a San Jose based company shipped their first commercial product. Their factories are in California and Germany.

Oh, and if I appear cynical about the West's chances, keep these figures in mind:

IPod - Where the money goes.

The retail value of the 30-gigabyte video iPod that the authors examined was $299. The most expensive component in it was the hard drive, which was manufactured by Toshiba and costs about $73. The next most costly components were the display module (about $20), the video/multimedia processor chip ($8) and the controller chip ($5). They estimated that the final assembly, done in China, cost only about $4 a unit.

This their analysis of the value added amounts, though:

The researchers estimated that $163 of the iPod’s $299 retail value in the United States was captured by American companies and workers, breaking it down to $75 for distribution and retail costs, $80 to Apple, and $8 to various domestic component makers. Japan contributed about $26 to the value added (mostly via the Toshiba disk drive), while Korea contributed less than $1.

Apparently China ends up just being the place where electronics are assembled, n0t where much of the value is added. (There are other stats that look at the huge dollar value of electronic components they import in order to achieve their exports of a value that is not too much higher.) What was the other fact I heard? That all of the wafer fabs in China that are so scary to Taiwan actually only handle 3% of China's demand? (This demand including chips needed to export products, not just local demand.)

But still, China was first out of the box with cheap solar panels. Let's see how the horse race shapes up. And let's hope Nanosolar has some good IP attorneys and has seriously vetted their work force.

Solar panel raw materials are from foreign sources.

Side Note: India is a major producer of commercial windmills, another green technology that is supposed to provide the new manufacturing opportunities for rich countries. Probably more like design and engineering jobs, with some forklift positions and installers.

South African Politics

Actually, I know little or nothing about South African politics, but the Economist informs me that there is politician in South Africa who's name is Tokyo Sexwale.

I wonder what happens when plugs his name into one of those "What's your porn name" programs? Does it melt down the machine?

Asymmetrical Warfare

If you can't beat your opponents at Axis & Allies the normal way, just drink them under the table. Or play people who have to get home early.

Karl and I drunkenly reviewed the board and thought we might have been able to win that last game. Looked like Japan could hold Anglo Egypt after its turn - I am thinking the effect of my third factory was finally reaching the front - and then Japanese tanks could have taken Africa, further reducing UK's ability to fund its dump. After I got home I also realized that once the Suez was taken, the Japanese Navy (which was fully combined) could have hunted down the British fleet. (Along with the 10+ aircraft I had on the board.)

Regardless, it was an interesting game.

Karl-Red A House 1:00 a.m. commute: two police check points avoided. wife check-point was not avoided, but she let me off with a verbal warning.

Dutch Housing Market:
The average cost of a house five years ago was EURO 137,000. Now, a single-family dwelling averages between EUR 240,000 and EUR 250,000.

This PDF has a whole lot of data to digest:

The house price-to-income ratio has stabilised in the past few years, although its level is still high from an international perspective. The effects of rising house prices on affordability have been mitigated by favourable financing conditions. While the average housing cost-to-income ratio for homeowners has been quite stable since 1995, there seems to be a dichotomy between movers, who profited from the earlier house price boom and have surplus value, and starters, who have no surplus value and fewer financial buffers.

One thing for sure about Taiwan, low interest rates, like 5% for mortgages, will surely lead to higher prices, as people can afford more.

More thinking later.

Imported Beer Data

As of my last data (2006/06/26) the alcohol tax on beer was NT$ 26 / L of beer.

There was also a 1.6% import duty.

5% VAT.

Plus the Customs guy would always take a few bottles of Honey Apple Cider for "sampling" for some reason. Fine by me. Beer is better than cider.

When I have time, I will re-visit the Miller/Heinie pricing based on this data.

Housing Market in Taiwan

For years now, I have seriously wondered about the housing market in Taiwan. My wife constantly harps on me to buy a house, but I just cannot pull the trigger on a NT$ 10 million apartment the size of a dorm suite. (Actually the apartment might cost less, but you need to buy a parking space, right?) Explaining that the rent vs. own calculator always tells you to rent in Taiwan doesn't assuage my wife's angst either. Oh well.

Now, if that's me, how about for the average Taiwanese with a salary of NT$ 450,000 / year? That apartment is 22 times their annual income! (That salary is just a guess at the median income based on 15 months salary of NT$ 30,000.)

One of my customers has a financial background and he suggested off hand that a reasonable way of calculating a house price budget was 10 times your after tax income. Let's just assume a 13% tax bracket and ignore the personal exemption. That puts the house budget at around NT$ 4 million. Which is about what a tao fang at Feng Jia University runs. Okay, assume both parents work, and then they could probably afford a very low end apartment by this calculation method.

Today, I read an article by an economist that has different numbers.

Determining the Right Price

I believe that the maximum ratio of the house price to income should be six. I calculate that figure as follows.

First, assume that it is reasonable for a household to pay 25 percent of its gross income on rent. So if you have a $48,000 household income, you can afford $12,000 a year in rent, or $1000 a month.

Next, assume that you make a rent vs. buy calculation by figuring that you need an inflation-adjusted return on housing investment of 4 percent per year. The price/rent ratio is 100 divided by the required return. 100/4 = 25, suggesting that the price/rent ratio should be 25.

Historically, price/rent ratios in the housing market have been lower--closer to 15. I am not sure why it has been so low. Perhaps it reflects high transaction costs in the housing market--real estate commissions and all of the "junk fees" that afflict home buyers.

If my figure for the price/rent ratio of 25 is correct, then a household that would spend $12,000 a year on rent should buy a house for 25 times that amount, or $300,000. If the price/rent ratio should be 15, then that household should spend no more than $180,000 on a house. Those are the sorts of house prices that make sense for a household with an income of $48,000.

So by these numbers, Taiwan's housing prices seem out of whack. The aging townhouse I rent has a market value of around NT$ 12 - 15 million. It rents for NT$ 25,000 / month. At the 25 price/rent ratio it should only sell for NT$ 7,500,000. At the 15 price/rent ratio, it should cost 4,500,000.

And for the person earning NT$ 450,000 annually, they should be buying a house in the range of NT$ 3 million or so. Which would mean an apartment (as they should be much cheaper than a townhouse.) If both parents worked or had higher salaries, then the townhouse would become pretty viable at the calculated values.

Instead, at the current prices, renting is almost always cheaper than buying, and you basically need to have bought a house a long time ago or have some land in the family to move up in better housing now.

Final proof, with the exception that proves the rule: Karl's apartment.

Questions & Caveats

Also, if anyone has better numbers for median income or knows more about the price of older apartments, let me know. Also, is there any reason land / housing cost more in Taiwan than in the USA? You might say land is more available in the USA, but labor is cheaper here to build the actual house. And were talking NT$ 10 million apartments, not houses, and they are far, far smaller and without any yard. Maybe concrete is more expensive? I do know that if you are willing to live out in the countryside you can get save maybe 30% or more. I also did not include the monthly management fees that apartment buyers have to pay, which would reduce your budget as well.

My New Seminar Gig

Seminar working title: Insane China Profits & Hot KTV Hostess Action

Topic 1:
Mold Deposits: Getting your customer's money to pay for your new tooling

Topic2:
Thick Face: How to react when your business cards are thrown in the garbage before your very eyes

Tip3:
How to make your hangover work for you.

Tip4:
Don't bring your wife to China. If you do, stay in the Shenzhen Hyatt, the only hotel in southern China that does not have an interesting 2nd 3rd and 4th floor.

Yahoo Headlines

Chavez suffers defeat in presidential power vote

Uhhhh, Yahoo, shouldn't that read:

Bush enemy defeated in Venezuela vote

Just to be consistent. Plus I used an alliteration.

On the beer post, I got a nasty head cold so I haven't done shit on it.