Are we moving into an era of 4D?

Everywhere is white with snow and the wind is howling. You are tumbling down the icy mountain wall with three baby penguins and a penguin egg. With cold-blast air blowing in your face, you are neither in Antarctica nor in day dreaming. You are in movie, a 4D movie.

When the newborn penguin breaks out of the egg shell, the seats jerk. Then a voiceover comes along, “It’s the miracle of birth.”

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While still going through the “post-Avatar” age, the age of 3D revival, the movie theaters are not satisfied with the declining box office and are trying the new gimmick, 4D technology, to get more people into the theaters.

As a leading role of pushing the 4D system, Seoul-headquartered CJ group opened a 104-seat 4D theater with its partner Regal Cinemas in LA Live this June, the first of the kind in the United States. “We opened the first auditorium in L.A. because it’s the place where Hollywood is located,” says Yassamine Wahab, marketing director for CJ 4DPlex. CJ 4DPlex, a branch of conglomerate CJ Group, is the company that designed 4D.

Theodore Kim, chief operating officer, LA LAB of CJ 4DPLEX. He is surrounded by fog, one of many effects created by the companies 4DX system. (Gary Friedman / Los Angeles Times)

Theodore Kim, chief operating officer, LA LAB of CJ 4DPLEX. (Gary Friedman / Los Angeles Times)

CJ Group and its partner have confidence in drawing crowds with the 4D technology. “It makes the movie, the viewing even more realistic and it puts you in the middle of the action that makes you feel exactly how the characters feel,” says Michael Roth, VP of the communications for AEG.

It shakes. It rains. It smokes. It blows. It smells. It lights. It bubbles. It also cashes in.

The 4D theater in Downtown L.A. is outperforming traditional movie theaters, according to Variety. For instance, “Transformers: Age of Extinction” generated $105,016, an 138 percent more than the national average of $44,054, during its first thirteen days. “Dawn of the Planet of the Apes” performed even better, taking in $94,247 during the first 13 days, 145 percent more than the industry average. “The one theater that equipped with 4D system sells out on a regular basis,” Roth says.

Although higher ticket prices certainly give it a higher box office than other regular cinemas, the occupancy rate is still impressive. Regardless of the weekday, the weekend, or the title, it enjoyed an average attendance rate of 63 percent. Most theaters’ attendance rates vary between 10 percent to 15 percent. “It’s beyond expectations. People were very curious about this process, so that they came early to see the showings,” Roth says.

The average ticket price of a 4D movie is $15, about $7 more than the U.S. average ticket price of $8.16. “People understand that there is a premium attached to it, with the technology and all the equipments added,” Roth says.

It’s expensive to build up a 4D theater. There are two different ways of building a 4D auditorium. One is building a 4D auditorium in a newly constructed multiplex, and the other is transforming an existing movie theater into 4D auditorium by renovation. CJ 4DPlex did the latter, the more costly one, to the one in L.A.. It took them about 3 months to install motion chairs and various equipments for environmental effects.

CJ Group told Los Angeles Times, “it costs about $2 million to design and outfit a 4-D theater, with exhibitors covering half the costs.” CJ Group also says circuits quickly recoup their investment because the theaters are so popular.

The 4D auditorium in Hollywood is not CJ Group’s debut. CJ started off its 4D journey home — it showed its first film with 4D effects “Journey to the Center of the Earth” in an 88-seat theater in Seoul in 2009.

With the introducing of 4D “Avatar” in 2010, CJ Group opened three more “4D Plexes” in South Korea. Matthew Patrick, a member of the Academy of Motion Picture Arts and Sciences, explains, “It’s such a trip to another world, so the magic of the world is already so great that this [4D effects] would just add to it.”

CJ’s 4DX is currently running 128 auditoriums in 28 countries worldwide, including Mexico, Korea, China, Russia, the U.S. and Japan. On average, 4D auditoriums generate 3 times as big as the box office revenue of 2D or 3D general formats. And the occupancy rate of 4D theaters is 10 to 30 percent higher than that of general auditoriums, Wahab says.

The South Korean company is not alone. In Australia, Merlin Entertainments runs a 4D cinema at the Sydney Tower Eye where people can have the views for real on the top of the observation deck during a short film that shows off the city’s sights.

An Indian shopping mall, Sector 4D Shopping Centre, installs an even more extreme effects in the cinema, with seats moving in all directions, including free-falling, vibrating and flight simulation.

Comparing with “Avatar” igniting the global excitement about 3D screens, — in 2010, the number of 3D screens installed more than doubled from 16,339 to 36,242, an increase of 121.8 percent — 4D theaters still have a long way to go.

4D movie theaters may need another “Avatar” to really thrive. “You gotta have the right movie, a great movie,” Patrick says.

Before going wide release in regular cinemas, 4D cinemas have been running at theme parks and amusement parks around the world for more than two decades. “Theme park is a great place for 4D, because everybody is looking for something different from regular cinemas, something adventurous,” Patrick says. When watching 4D “Shrek” at Universal Parks, moviegoers are shaken by moveable seats when Shrek is running, and sprayed with water mist in the face when Shrek is sneezing.

CJ Group insists it isn’t building theme park rides, and says its theaters offer a much richer movie experience, according to Los Angeles Times.

“People may pay for the shaking seats, the smells and the bubbles once or twice, but I don’t know whether people are willing to spend money to do it five times,” Patrick says.

3D used to be very painful to watch. “We didn’t expect that 3D was gonna become this big,” Patrick says. With the technology getting so much better, people don’t get the headaches as they used to and have a better experience with 3D screens and glasses. 3D films stopped scaring people away by the better technology.

Likewise, the 4D technology has to be improved to secure audience for the future. And it’s tough.

The shaking chairs have been seen even before the 4D movies at theme parks. That is the movie “The Tingler,” an American thriller film. It was more than 50 years ago when they made certain seats shake a little bit and certain people were screaming at the theaters. “They weren’t expecting it.” Nowadays people won’t be scared off by moveable seats, but how many times can they get excited because of it?

The smell is very tricky to be programmed into the movies because certain smell is too strong and unpleasant to people. And fog is hated by most directors, says Patrick. It takes a long time to get rid of fog. There are two kinds of fog can be used in a 4D auditorium — one is very low on the ground, and the other is spreading everywhere. Fog spreading everywhere may make the screen darker, however, filmmaker are always trying to make the images as bright as possible.

Often times, 4D films come a little bit later than 2D or 3D films and normally it takes at least 16 days for 4D editing. It can be a problem — people want to see the film in the first two weeks and they don’t care to see the 4D version after all the excitement is gone.

The way to solve the “lag problem” is to cooperate with local studios to launch a film with 4D for the first time in the country. CJ 4DPlex has tried once. It invited the director Alponso Cuaron and had “4DX premiere” with ‘Gravity’ in Morelia, Mexico in 2013.

“The movie theaters did 3D to try to fight with television, and now they are having the same problem — they are raising the ticket prices but they are not getting more people into the theaters,” says Patrick. The cinema with a new dimension burns with an ambition to reverse the longtime decline in cinema attendance in the U.S..

But a whiff or a strobe light doesn’t make a great movie that attracts millions of people to the theaters. “You have to have really good stories that people want to see in the big screen — stories always come first, in stead of the format.”

When will China return?

Until 1800, China accounted for a third of world economy. In the 1880’s, the U.S. overtook China as the largest economy, a position China had for several hundreds of years. It looks like things will be returning back to “normal” in a generation’s time.

Chinese GDP growth

China’s growth record in the past 30 years has been incredibly remarkable, it enjoying a steady growth even during the Financial Crisis in 2008 and comprising 11 percent of global economic output in 2013. Robert Fogel, a Nobel winner in economics, forecasted in 2010 that Chinese total economic output would be $123 trillion in 2040, four times the U.S economy he predicted.

What makes China’s economy look so successful?

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The first essential factor would be Chinese government making huge investment in education. Well-educated workers will turn to be highly productive workers. In China, higher education are growing steeply due to enormous state investment. In 1998, only 3.4 million students were enrolled in China’s universities. The fast change was impressive: in 2002, enrollment in higher education increased 165 percent.

Second, Chinese officials may undervalue its economic progress. In service industry, small firms often don’t report their numbers to the government and statisticians always fail to translate improvements of services’ quality into economic progress. A simple example: Chinese hospitals’ registration fee has been remaining at an unaltered ¥10 for more than a decade.

Finally, China is undergoing consumerist tendencies. In Chinese mega cities, there is already a high standard of living. At the same time, a host of policies has been set to encourage Chinese consumers’ appetite.

Everything seems to go well in China. Are there elements hindering its economic development?

“Why will growth slow? Mainly, because that is what rapid growth does.” Episodes of super-rapid growth (>6 percent) are inclined to be extremely short-lived. The median duration of a super-rapid growth episode is nine years. There are only two economies close to China’s current duration — Taiwan and Korea.


During the late 1980’s, it was widely believed that Japanese-style industrial policy, Japanese emphasis on corporate linkages and high levels of investment were keys to rapid growth. At an even broader level, it was widely believed in the early 1960’s that the Soviet Union would quite likely outstrip the United States economically.

But those forecasts were never lucky enough to be realized.


Will China be an exception? According to a prediction by The Economist, even under a moderate GDP growth rate of two percent, China will surpass the United States in 2029. Apparently, it is destined that China will lead the global economy in stead of the U.S. in few decades.

Then what will happen if China’s economy exceeds the size of America’s? Why does China’s return even matter?

A bigger economy will certainly give China global commercial domination. Fluctuations in China’s domestic demand will send ripples around the world. Market surveys will focus on China first. Leadership of international institutions will shift toward China as well. This movement includes the equivalents at that time of the United Nations, the World Bank, the International Monetary Fund, and regional development banks, etc. A more visible shift would be various headquarters moving to Beijing or Shanghai.

Geopolitically, it will necessarily alter the preeminent position that the U.S. has enjoyed since the end of the Cold War, and that Western nations have enjoyed since the 19th century.

Mobile ads doubled Facebook’s IPO price

May 2012, Facebook’s IPO turned into a huge Wall Street debacle and plumped to $17.73 that summer. Today, the tech giant’s stock price has remained around $76 since this July, doubling the company’s IPO price of $38.


CEO Mark Zuckerberg belled ringer by his mobile strategy. When the social network went public, almost all its revenue came from desktop-based ads. But with more than 500 million people consuming Facebook portably, Zuckerberg needed to transition his business.

And that transition to mobile business turned out to be smooth and successful. What has been doubled is not only its stock price, also its mobile active users — around one billion people are actively using Facebook mobile app. What’s more, the social network’s mobile ad revenue takes up more than two-thirds of its total ad revenue. Facebook’s share of total mobile advertising market is predicted to pass 12 percent in 2014, quadrupling that in 2012. That makes Facebook the biggest beneficiary of the mobile age.


Google is another big player of mobile advertising. But its mobile ad revenue accounts for only one-third of its total ad revenue and the price tag on Google’s mobile ads are much less than that of its desktop ads, according to The New York Times. From Facebook’s perspective, things look completely different: one year after its IPO, Facebook’s VP of global marketing solutions Carolyn Everson claimed that Facebook’s mobile ads cost more than desktop ads.

The new auto-playing video product is helping Facebook’s mobile monetization as well. The company wrote in a blog post that its 15-second Premium Video Ads will start playing without sound in the News Feed, and the sound will start only when users tap the video.

The company started testing premium video ads last December and introduced these ads on Facebook with a select group of advertisers this May. Facebook will sell and measure the ads “in a way that’s similar to how advertisers already buy and measure ads on TV.” This new function targets “advertisers who want to reach a large audience with high-quality sight, sound and motion.”

Facebook-owned Instagram’s performance will also charge the giant’s mobile business ahead. The photo-sharing app, with 150 million active users, only started to play ads last November. Michael Kors and Ben & Jerry’s are Instagram’s early-stage clients. Spending $1 billion on Instagram two years ago, CEO Mark Zuckerberg has every reason to expect the photo-sharing app bringing in real dollars.

This March, Instagram made a 40 million digital ad deal with Omnicom, a major holding company having a great many big-brand clients, including Nissan, AT&T and Pepsi, and looking to establish a strong relationship with the growing mobile platform. Instagram will be displaying video ads some time as well, just as its parent does.

For today’s Facebook, “Every moment is mobile.”

Two-tiered exchange rate of Korean People’s Won

Ten P.M. in Pyongyang, all street lights went out. I shined a torch to penetrate the darkness. Two patrolmen spotted the light source and shouted at my direction. In a jitter, I responded in Chinese. After realizing I’m a foreign visitor, they softened their tone and let me pass by. Pyongyang citizens are not allowed to go outside at night. Another thing prohibited by North Korean government is foreign visitors exchanging for Korean People’s Won.

North Korean 5000 Won

North Korean 5000 Won


Then how can a foreign traveler make a purchase in Democratic People’s Republic of Korea?

In the past, a separate currency for foreign visitors, also known as foreign exchange certificates, was issued by North Korea’s central bank, including two types — “red won” for visitors from socialist countries and “blue won” for visitors from capitalist countries. Foreign exchange certificates has been abandoned since 2002.

When you travel to North Korea now, in theory, you are not allowed to have North Korean won, but if you want to take something from North Korean back home, you can shop at state-run stores held in hard currency. Goods’ description labels are in English and Chinese, and goods are priced in dollar, Chinese yuan and euro there.

But that is only in theory. In fact, you can trade for Korean People’s won after street lamps going out — in the black market. I have traded Chinese Yuan for Korean People’s Won twice out of three attempts. I first traded 10 yuan ($1.6) for 10 won with two North Korean basketball players. At that time, the official exchange rate of yuan to won was 5:1, and the exchange rate in black market was about 570:1. They knew they made a killing by doing this deal with me — getting around 5,700 won by giving me 10 won.

North Korea did and does tightly control exchange rate. The iconic rate of 2.16 won (Kim Jong-il’s birthday is Feb.16) to U.S. dollar was abandoned in 2001, but the Korean government still extremely overvalues won. That’s why North Korean won in the black market is worth much less than what North Korean government wish it to be.

Then I went to a street shop in the same decoration with other shops distributed sporadically on the street. Bread displayed on the shelves comes from one single place with an identical package. Yellow neon casted dim but warm hue on the shop assistant. The moment I tried to start a conversation, she took a glance over my dangling Nikon D7 and kicked me out.

Last I stepped into a grocery store inside a residential district, which looked very different from prior street shops. A variety of commodities were set at random. I didn’t know whether I was an uninvited guest to this little store or not. But the salesman stood up when he saw me and he seemed to know he could get RMB from me. He was even willing to take the risk of being caught because I obviously offered a good deal. I bought a carton of cigarettes and 5,00 won with 50 yuan ($8.2). 

I made my “official” purchase in North Korea at a state-owned store especially running for foreign visitors — I bought an exact same carton of cigarettes as last time in 100 yuan ($16.3). They make won at least looks valuable by over-highly pricing goods to foreigners.

I’ve heard our North Korean tour guide chiding today’s China as faded socialism for dozens of times. And that was the one and only occasion when I thought “faded” was a positive word.

A young start-up’s ambition to revolutionize the jewelry industry

Last week Ito received a random email request for a custom chandelier earring design from a sales consultant from Georgia. The costumer sent Ito a 2D picture of a chandelier and hoped Ito would print it out trough 3D printing.

Jeffery Ito, 23, graduated in Dec. 2013 from University of Southern California with a B.S. in Industrial and Systems Engineering. With his savings of around $8,000, he started up a 3D Printed Jewelry company–Mocci–in Jan. 2014. He was brought up in a military family, however, he loves beautiful designs and edgy technology.

IMG_7845Two years ago, Ito went to the Convention Center Westec, seeing 3D printers everywhere there and printing out little plastic toys. “It was really cool because every printer was making goods, and it was not like everything I’ve seen,” Ito says.

That was the point where Ito knew 3D printing was something that he wanted to work with. “Jewelry actually spoke out to me, because it’s a big industry, and it definitely needs good designs to be successful,” he says.

Now engineers and designers use programs like Blender and Rhino to create 3D modeling, then they transfer the file to another program called Netfad where they check the whole design. Once that is finished, they send that file to the 3D printer and print. “The beauty of 3D printing is that you can create anything you can imagine, allowing for customization, any kind,” Ito says.

He wants to make that process easier, even accessible to customers — he is creating an app.  The app will offer an user friendly interface where people can design personalized jewelry and buy from right there, according to Ito. “The first prototype is gonna be just letters you want to type around the ring, something very simple,” he envisioned.

There are barely predecessors.

“Everything was either low quality or like engineers creating jewelry that was not visually appealing,” says Ito, adding, “There wasn’t anything that really spread out in the 3D jewelry printing industry.”

Christy Designs, located in the Jewelry District , is a typical 3D jewelry printing firm only providing printing services without offering design services, and it merely prints wax and plastic pieces. “We are super busy everyday, printing jewelry 24/7,” says the owner of Christy Designs.

According to the owner, the seven-staff firm founded in 2001 is the first 3D printing firm in Downtown L.A., receiving more than 500 customers every month. The narrow, simple and crude firm sits 15 3D printers, and each one of them worth more than $100,000.   

“3D printing is faster, you can print 100 pieces with the machine while you can only make one piece by hand spending the same amount of time,” he says.

Ito wants something more than just efficiency.

With his one-man team, he firstly designed six gold plated brass pendant necklaces by himself and printed them via Shapeways, where customers can upload 3D files and Shapeways prints the objects.

Ito can use Shapeways in the future, but the two-week lead time is concerning. He also found designing was definitely not his specialty. So he have hired a designer from Armenia. To complete the supply chain, he will use a wax printing to print wax mold and casting service in Downtown L.A. to outsource his manufacturing.

He followed a suggestion given from an entrepreneur event called Entrepreneur Revolution to increase the selling prices of the six brass jewelry pieces — in the $200-$500 range. His selling prices are between $179 to $399.

But later on, he keeps receiving feedbacks from customers that the prices are too high. He wanted to adjust his service to an end-to-end one which automates most of the process to free up unnecessary hires thus cutting costs, by programming an app that asks a question on what kind of jewelry customers want to design and sends him an email and then work from there.

He launched the Kickstarter project on Oct. 6th to acquire funds. Although it hasn’t been successful, a side effect of it is that he is receiving far more traffic on his website, increasing from 20 views a day to over 100 views a day. So he now has got some revenue from advertising. He will also turn to Angel Investor for further funding. 

Zazzle, Etsy, Shapeways, and Jeweldistrict are all entrepreneurs in the the 3D printed jewelry space that he has to compete with. He will stand out by being an authority in the space —teaching others via his website, Ito says.

The big players in the fine jewelry industry, such as Tiffany’s and Cartier whose focus is on “luxury”, provide superbly designed jewelry that can be bought from stores, which most people have been accustomed to for years.

“They (the products by big players) are in the thousands, tens of thousands, millions of dollars, but not everyone can afford expensive jewelry,” Ito says. According to him, his lower prices will lead to customization lending to a wider market.

But there is one group of customers that is hard for Ito to satisfy–fans of clean and natural gems. Now it is possible for expensive industrial 3D printers to print metal alloys or a cost-efficient method for 3D printed metals is with a wax mold. But synthetic gems are beyond todays’ 3D printing technology. Even if synthetic gems will be available to be printed out in the future, they won’t be the first choice for natural diamonds lovers.

“Customization is something that people would love,” he says. “The demand of customization exists, however this is something I feel consumers don’t know they need until they have it, especially for jewelry in the $100-$1000 space,” Ito added.

Ten months has elapsed since he started the business. He hasn’t put up anything for sale. His savings are running out and his funds are not finalized, but his aspiration of making a difference in the jewelry industry is growing with each passing day.

“My business will reshape the way people purchase jewelry by making it easier to personalize, visualize and purchase jewelry without going to a store,” he says confidently, adding, “It will blur the lines between fine jewelry and fashion jewelry.”RA03-15-13

The 3D printing business is still in the early adopter stage, where the PC business was in the early 90’s. Most people had not heard of 3D printing until the introduction of consumer level 3D printers in recent years.  “When people talk about 3D printing, they still think of it as a crazy nerdy thing,” says Ito.

He envisions the future of manufacturing created by 3D printing: people everywhere are able to create anything they want, so the designers become the manufacturers and they are also able to reach out to anybody in the world and sell to anybody.

Once that comes true, not only the sales consultant from Georgia can receive his earring at home, people around the world can get their personalized everything without stepping out of houses.

“3D printing is the technology of the future.”

Struggles Behind Big Money

Photography by Yingzhi Yang

Refueling the car every other day, working seven days a week, shuttling back and forth deep in the concrete jungle, is the kind of life Sergio Sanjurjo gets along with every single day. And he loves every second of it.

Sanjurjo, 25, has been driving for UberX in Los Angeles for five months. Along with doing two other jobs — property manager and marketing promotion— he would be lucky to have five hours to sleep everyday.

“Bills and prices of everything is getting higher, so the only way to get ahead in life is you gotta hustle hustle hustle,” Sanjurjo said, laughing. His main goal is to make enough money within ten years and retire by 35. 

His weekly revenue from driving 30 hours a week is $950. According to Uber’s 80-20 split policy, he gets $760. “Whatever you make, you get 80%,” Sanjurjo said, “so it would be worth driving.” 

Subtracting gas bill $100, car maintenance fee $20, iPhone rental fee $10 (Uber rents an iPhone to each driver to connect them to the APP and block incoming calls) and insurance $30 from $760, he makes a weekly income of about $600. “You can’t complain about that,” He smiled and said, “now your car is working for you instead of you working for a car.” 

Sanjurjo enjoys being an Uber driver most. Not only earning double what he made at a nine-to-five-job, but the sense of making money for himself instead of for somebody else makes him happy. “Different from punching clock everyday, I come and go as I please,” he said.

Being an Uber driver also makes him proud. Some customers come to his car and complain how expensive and smelly the taxies are, how rude the taxi drivers are, and meanwhile express how much they enjoy taking Uber. 

But a recent UberX fares slash by 25% makes Sanjurjo feel the sting. Sanjurio ups his driving time by ten hours per week just to make what he was originally making.

In order to get more rides, he has to keep an eye on the hotspot map showing where all the Uber drivers are, trying to drive further out to avoid a bunch of drivers near him. He also has to stay out longer to pick up people further away where he would not like to be originally.

Especially in traffic, the cost remains the same while the revenue seriously drops. He could be stuck for more than an hour making barely any money. “Driving in traffic is not fun,” Sanjurjo said. 

Sanjurjo always chooses not to drive in traffic. He gets off early, utilizes his day and goes home early before rush hour.

Cutting the price is not the only way Uber leverages supply and demand principles. Actually, Uber is using dynamic pricing — raising prices when the demand is high, cutting prices when the demand is low. As MIT professor Yossi Sheffi puts it, it’s the “science of squeezing every possible dollar from customers.”

During a snowstorm in New York last December, for instance, UberX gouged the price 8.25 times the normal amount. But high risk always comes along with high reward. As James Surowiecki writes in In Praise of Efficient Price Gouging, “the reality is that the times when people most want a ride are also the times when it’s most annoying and, often, most risky to drive.”

For an Uber driver like Sanjurjo in L.A., where snowstorms never happen, surge pricing during times of high demand is the best thing that could happen. “Thanks to the surge pricing strategy,” he said, “it makes me some really good money.” He once made $200 on a normally $40 ride.

The surge pricing is short lived. More often, he deals with annoying cancellations. “It’s irritating when you are on your half way to pick somebody up and they just cancel on you at the last minute,” Sanjurjo said.

Uber’s cancellation policy tries to minimize the hurt by charging a cancellation fee if people cancel rides after five minutes. But any cancellation within the five minutes costs drivers’ money. The unpleasant episode, happening three or four times a day, costs Sanjurjo three or four full gallon of gas.

Sanjurjo’s biggest concern right now is whether decision makers in Sacramento will ban Uber in California. He doesn’t want to lose his favorite job. “I hope they can see that a lot of people make a good living on this and a lot of consumers enjoy it,” he signed.

After topping off his car, Sanjurjo turns on the engine and releases the brake. He and his car blends into the armored concrete and steel.

The Big Mac Index


The Big Mac Index (BMI)012814_0348_2, was introduced by The Economist  in 1986 to “make exchange-rate theory more digestible” — tracking the over- and under-valuation of each currency against the dollar. The Big Mac Index was based on Purchasing Power Parity (PPP) Theory that a particular amount of dollars should be able to buy an identical basket of goods in each country. And that basket of goods here is the Big Mac.

If a country’s dollar price of a big mac is less than that of the United States, it means that the country’s currency is undervalued against the dollar. For example, in July 2014, $4.80 buys a Big Mac in the United States, while $2.73 buys one in China. Therefore, the yuan is undervalued by 43.13% ((2.73-4.80)/4.80*100%=-43.13%) .

McDonalds’ Big Mac is produced nearly in the same manner and held to the same standard in more than 100 countries, thus the index makes comparing many countries’ currencies possible.

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The BMI has been a heated topic with one of the highest annual growth rates among other popular economic indicators since it was introduced.

Screen Shot 2014-09-02 at 12.57.31 AM

Source: The Economist

In the map above,  Asia is the cheapest place to buy a big mac — Asian countries’ currencies are undervalued while European countries’ are overvalued. In 2014, the most undervalued currency is Hryvnia, undervalued by 66.09% against US dollar, and the most overvalued currency is Kroner, overvalued by 61.79%.

Screen Shot 2014-09-02 at 2.51.26 AM

Source: The Economist

The table above indicates the trends for the four East Asian currencies tracked consistently from 2000 to 2014. South Korea is still in as big an upheaval as it was ten years ago. It began with a valuation 7.87% above the dollar and ended up with a valuation 16.48% below the dollar with some ups and downs in between. The yen has had a bumpy ride too.

The Big Mac Index for South Korea

The Big Mac Index for South Korea

After being pegged to the dollar for more than three decades, the won became a floating currency in 1997. Also in 1997, South Korea was confronted with Asian Financial Crisis and the region’s currency depreciation (other three biggest victims are Thailand, Malaysia, and Indonesia). 1997 is one of the watersheds — the won’s BMI curve had been comparatively gentle by the end of 1997 but it dramatically plunged from 1996’s 25% to 1998’s -31%. After the IMF bailing out the country in 1998, South Korea ushered in a moderate economic growth. 2008 is another watershed. Influenced by the global economic crisis, the won ‘s BMI experienced a downtrend from -7.81% to -27.55%. More evidently, the won’s BMI curve goes hand in hand with South Korea’s GDP growth, sharing a precisely synchronized rise and fall.

Hong Kong dollar and Chinese Yuan have remained relatively steady over the last 14 years. Hong Kong’s relatively smooth curve (47.83% undervalued in 2000 to 43.14% undervalued in 2014) can be explained as “Hong Kong dollar is tied to the American dollar”.

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Source: The Economist

How about China? Its relative stability (52.36% undervalued in 2000 to 43.14% undervalued in 2014 with little movement in between) might be partly attributed to the steady economic growth even during the crisis. 


Source: The Economist

The Big Mac Index also reveals the rise and fall of the currency’s value under the mask of a Big Mac’s unvaried local price and exchange rate. Taking Chinese Yuan as an example, the exchange rate and the average local price of one Big Mac almost remained unchanged from 2000 to 2004, but the BMI implies that the yuan was undervalued to a varying degree during that period. The relation between BMI and RMB/dollar exchange rate has become more reasonable since 2005, because RMB/dollar exchange rate was tuned to be more “natural” by the Chinese government in 2005. This can be further explained by China’s changing currency policy.

In 1994, the Chinese government announced an initial RMB/dollar exchange rate of 8.70, which was raised to 8.28 by 1997 and remained constant until 2005. In 2005, the Chinese government modified the RMB’s exchange rate to become “adjustable,” adjusted from 8.28 to 8.11. China then halted its currency appreciation policy from 2008 to 2010 in response to the global economic slowdown, RMB being pegged to the U.S. dollar for roughly two years. In June 2010, Chinese authorities allowed the exchange rate to appreciate answering to market forces’ call.

Like any other economic indicator, the BMI has limitations. First of all, due to the different social status of fast food in different countries, the selected item may not be representative enough to see the whole picture of the country’s economy. Second, Big Macs are produced in various sizes with different ingredieants, and McDonald’s even use different commercial strategies around the world, which would result in a “non-identical basket” of goods.

With the popularity of the BMI, some similar indexes came into being. The alternative indicators based upon PPP Theory are iPad Index and iPod Index.