Cablegate: North Korea Economic Briefing - September 2009

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RR RUEHVK
DE RUEHUL #1563/01 2730513
ZNR UUUUU ZZH
R 300513Z SEP 09
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC 5798
RUCPDOC/USDOC WASHDC 9216
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEAUSA/DEPT OF HHS WASHDC
RHEHNSC/NSC WASHINGTON DC
RUEHKO/AMEMBASSY TOKYO 6779
RUEHBJ/AMEMBASSY BEIJING 6709
RUEHGP/AMEMBASSY SINGAPORE 7271
RUEHHK/AMCONSUL HONG KONG 4006
RUEHSH/AMCONSUL SHENYANG 5099
RUEHVK/AMCONSUL VLADIVOSTOK 1732
RUEHIN/AIT TAIPEI 4057

UNCLAS SECTION 01 OF 05 SEOUL 001563

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV ENRG ETRD KN
SUBJECT: NORTH KOREA ECONOMIC BRIEFING - SEPTEMBER 2009

1. (U) This cable is sensitive but unclassified and not/not
intended for Internet distribution.

-------------
In This Issue
-------------
-- New Finance Minister Named
-- Labor Drive Campaign Extended
-- DPRK Shuts Down Wholesale Market
-- DPRK Expands Telecommunications Network
-- Pyongyang Will Build 100,000 New Houses by 2012
-- DPRK Bans Anthracite Exports
-- DPRK-China Trade Fell in the First Half of 2009
-- DPRK-Germany Trade in the First Half of 2009 Rose 30 Percent
-- Swiss Watch Exports to the DPRK Doubled in 2008
-- DPRK Continues to Import Luxury Cars
-- ROK Think Tank: Unification Requires Higher ROK Taxes
-- Inter-Korean Trade Falls 22 Percent in July 2009
-- DPRK Profits from Monopoly on Inter-Korean Shipping Route
-- Switzerland to Withdraw DPRK Assistance Projects by 2011
-- French NGO Donates 400 Rabbits to DPRK

Domestic Economy
----------------

2. (SBU) New Finance Minister Named: North Korea's Central News
Agency (KCNA) reported September 18 that the DPRK has promoted Kim
Su-gil, who was Vice Finance Minister, to Finance Minister and
upgraded the position to Vice-Premier. The upgrading of the Finance
Ministry may reflect the DPRK's economic development campaign to
revive its economy by 2012. There are five Vice-Premiers in the
DPRK cabinet, including the newly appointed Finance Minister.

3. (SBU) Labor Drive Campaign Extended: The DPRK on September 21
extended its economic development campaign for another 100 days,
according to the KCNA. The DPRK Workers' Party claimed that it has
made great achievements through the 150-day campaign aimed at
boosting the country's economic growth. During the campaign, which
began on April 20 and was slated to end on September 16, 2009,
DPRK's industrial sectors reportedly overshot their targets by 12
percent and production in the DPRK reached the whole year's
production quota. It said the DPRK government called for launching
another 100-day campaign, to achieve even greater economic success
in 2010. Many ROK experts contend the 150-day campaign and previous
campaigns have hurt the economy by distorting the distribution of
resources.

4. (SBU) DPRK Shuts Down Wholesale Market: The DPRK reportedly
closed Pyongsong Market, the largest unofficial wholesale market in
the outskirts of Pyongyang. According to NGOs, the DPRK closed the
market in June, in part because a large number of merchants were
reportedly selling their goods secretly at home. Prior to the
closing, there were reports of police surveillance and inspections,
during which police confiscated items without providing
compensation.

5. (SBU) DPRK Expands Telecommunications Network: North Korea's
Central Broadcasting Station reported August 26 that North Korea is
expanding its telecommunications network nationwide and renovating
its broadcasting sector. According to the report, fiber-optic
cables have been laid from Pyongyang to all provinces in the DPRK to
upgrade communication quality and enhance the flow of information
throughout the country. It said automation and digital capacity has
increased seven fold from 16 years ago, citing the realization of
fiber-optic technology in provinces and small towns in the DPRK.

6. (SBU) Pyongyang Will Build 100,000 New Houses by 2012:
Japan-based pro-North Korea Chosun Sinbo reported August 7 that Kim
Jong-il has instructed DPRK officials to build 100,000 homes in
Pyongyang by 2012. The construction is aimed to create a strong and
prosperous nation by 2012.

Foreign Trade and Investment
----------------------------

SEOUL 00001563 002 OF 005

7. (SBU) DPRK Bans Anthracite Exports: On August 24, Yonhap News
Agency quoted Chinese sources as saying that North Korean
authorities have recently banned exports of anthracite. The recent
ban was reportedly to secure sufficient quantities for domestic
demand. The DPRK has been exporting USD 100-200 million (2.5 - 3
million mt) of anthracite per year and accounting for 60 percent of
total DPRK exports. Experts assess that DPRK's anthracite export
ban is an attempt to normalize its infrastructure by supplying
anthracite to DPRK thermal power plants to produce more
electricity.

8. (SBU) DPRK-China Trade Fell in the First Half of 2009: According
to the Korea Trade and Investment Promotion Agency (KOTRA) on August
7, bilateral trade between the DPRK and China in the first half of
2009 declined 3.7 percent to USD 1.12 billion. China exports to the
DPRK in the first half of 2009 fell 8.4 percent to USD 750 million,
while Chinese imports from the DPRK from January to June 2009 rose
8.2 percent from the previous year to USD 352 million.

9. (SBU) DPRK imports of mineral fuel from China fell nearly 50
percent in the first half of 2009 (year-on-year) to USD 153 million.
Mineral fuels topped the list of DPRK imports in 2007 and 2008.
However, DPRK imports of crude oil from China in the first half of
2009 fell 54 percent over the same period in 2008 to USD 111
million. DPRK imports of cereals in the first half of 2009 also
dropped 23 percent to USD 23 million from the same period in 2008.

DPRK-China Trade in First Half of 2009
--------------------------------------
(UNIT: USD MILLION, PERCENT)

YEAR China Exports China Imports TOTAL BALANCE
To DPRK from DPRK
---- ------------- ------------- ----- -------
2004 795(26.5) 582(47.2) 1,377(-1) 212
2005 1,085(36.5) 497(-14.7) 1,581(15) 588
2006 1,232(13.6) 468(-5.8) 1,700(7) 764
2007 1,392(13.0) 582(24.3) 1,974(16) 811
2008 2,033(46.0) 754(29.7) 2,787(41) 1,279
2009 750(-8.4) 352(8.2) 1,102(-3.7) 398
(1-6)
(1)Source: The Chinese Customs Office
(2)Note: Figures in the parenthesis are comparisons of the same
period in the previous year.
The growth in 2009 (January through June) is a comparison of the
same period in 2008.

DPRK Top 20 Imports Items from China
------------------------------------

(Unit: USD 1,000, Percent in Growth)

Rank Item 2008 Growth 2009 Growth
Percent Percent
---- -------------- ------- -------- ------- -------
1 Mineral Fuel 585,954 45.8 152,937 -49.4
2 Machinery & 145,486 40.1 62,256 -8.5
Boilers
3 Vehicles & 67,258 25.4 52,409 75.0
Parts
4 Electrical 100,646 45.3 44,561 19.2
Machinery
5 Iron & Steel 48,264 31.7 30,240 44.6
6 Plastics & Parts 80,045 46.6 29,577 24.3
7 Man-made 55,016 5.2 26,708 8.0
Filaments
8 Cereals 34,875 -4.5 23,186 -23.0
9 Apparel & 86,911 265.3 23,110 128.4
Accessories
10 Articles of 39,731 31.5 22,481 39.8
Steel
11 Meat & Fish 43,753 20.4 17,640 -10.7
Preparation
12 Fish & Shellfish 25,202 80.6 16,332 20.8
13 Man-made Staple 40,508 80.5 12,224 -6.8
Fibers
14 Fertilizer 12,730 37.5 11,910 57.4

SEOUL 00001563 003 OF 005

15 Oil Seeds & 21,130 7.3 11,464 3.7
Oleaginous Fruit
16 Rubber 36,548 20.3 11,411 29.2
17 Animal & 45,450 53.9 10,565 -3.3
Vegetable Fats
18 Edible Vegetables 17,964 52.4 10,527 26.3
19 Cotton 7,997 9.6 9,914 229.1
20 Inorganic 34,686 53.5 9,813 -51.5

TOTAL 2,033,233 46.0 750,124 -8.4

Source: PRC Customs Office
Note: The growth in 2000(Jan-Jun) is a comparison of the same
period in 2008.

10. (SBU) DPRK-Germany Trade in the First Half of 2009 Rose 30
Percent: KOTRA cited the Federal Statistical Office of Germany on
August 24 that bilateral trade between the DPRK and Germany from
January through June amounted to USD 68 million, 30 percent higher
than all of 2008. Trade between the DPRK and Germany had
continuously contracted since 2005. German exports to the DPRK in
the first half of 2009 totaled USD 36 million with major shipments
of machinery, electronics, medical devices and pharmaceuticals.
German imports from the DPRK in the first half of 2009 amounted to
USD 32 million, consisting mostly of vehicle components.

11. (SBU) Swiss Watch Exports to the DPRK Doubled in 2008: Radio
Free Asia (RFA) in August cited the Federation of the Swiss Watch
Industry (FSWI) and reported that the DPRK imported USD 55,260 worth
of 449 wrist watches from Switzerland in 2008, nearly double from
2008 (284 watches). A FSWI official said, We have actually checked
the value of those watches that were exported to North Korea and
they are not considered as luxury watches. He also stressed that
the Swiss government has been faithfully implementing the United
Nations Security Council Resolution (UNSCR) 1718 stating the ban of
exporting luxury items to the DPRK. However, Dick Nanto, a
specialist on the Korean Peninsula at the CRS, was quoted as saying
that the FSWI may have underreported its actual exports of watches
to the DPRK, because most of the Swiss watches exporting to the DPRK
are regarded as luxury items which have been banned since 2006.

12. (SBU) DPRK Continues to Import Luxury Cars: The ROK-based
Chosun Ilbo cited on August 27 a Japanese source familiar with the
DPRK and reported that the DPRK has been continuously importing
luxury cars despite UNSCR 1718. The source said that Kim Jong-il is
reportedly planning to acquire new models this year, adding to the
500 vehicles he currently owns. The source claimed that Kim Jong-il
purchased at least 10 Range Rovers and 20 Mercedes 600s after UNSCR
1718 banned the shipment of luxury goods to the DPRK in 2006.

Inter-Korean Economic Cooperation
---------------------------------

13. (SBU) ROK Think Tank: Unification Requires Higher ROK Taxes:
According to a recent report released by the Korea Institute for
Public Finance (KIPF), the Koreas will have to collect about 10
percent more tax for 60 years after unification, if the two Koreas
were to be unified in 2011. The figures are some of the most
detailed by the ROK on the potentially huge cost of reuniting with
the DPRK. Additional fiscal spending will initially reach 12
percent of ROK annual GDP, declining to around seven percent about
10 years later but increasing again afterwards, the KIPF report
said. The research was conducted assuming that it would take 50-60
years after unification to increase productivity in the DPRK to
about 80-90 percent of the ROK's. The income of South Koreans was
7.4 times higher than that of North Koreans in 1992, but the income
gap widened to 17 times in 2007. If South Korea's birthrate remains
low and the two Koreas were to be unified quickly, South Korea's
ratio of population compared to North Korea will shrink and South
Korea would bear a heavier financial burden for unification, the
report concluded.

14. (SBU) Inter-Korean Trade Fell 22 Percent in July 2009: MOU
figures show that inter-Korean trade in July fell 22 percent from
July 2008 to USD 140 million in July 2009, for the eleventh
consecutive month of contraction since September 2008. Despite that

SEOUL 00001563 004 OF 005

inter-Korean trade reached its highest level for 2009 in July, ROK
exports to the DPRK declined 34 percent rom July of 2008 to USD 64.7
million while imports dropped eight percent to USD 75.5 million.
Inter-Korean commercial transactions such as the Kaesong Industrial
Complex project, general trade and processing-on-commission fell 21
percent to USD 138.5 million. Non-commercial transactions between
the two Koreas in July this year significantly fell 73 percent
compared to July 2008, mainly because of the continued chill in
inter-Korean ties.

INTER-KOREAN TRADE IN JULY 2009
-------------------------------
(UNIT: USD THOUSAND, PERCENT)

Commercial Transactions
-----------------------
South Exports South Imports Total
To North from North
------------- ------------- -----
General Trading 653(-89) 22,351(-34) 23,004(-42)

Processing-on
Commission(POC) 24,960(17) 16,193(-13) 41,153(3)

Kaesong
Industrial
Complex 36,579(-39) 35,163(26) 71,142(-19)

Mt. Kumgang
Tourism Project 163(-95) 5(-100) 168(-96)

Other Economic
Projects 653(-63) 1,805(171) 2,458(1)

Light Industry
Cooperation 0 0 0

Subtotal 63,008(-32) 75,517(-8) 138,525(-21)

Non-Commercial Transactions
---------------------------
South Exports South Imports Total
To North from North
------------- ------------- -----
NGO Aid 1,725(-64) 0 1,725(-64)

Government Aid 0 0 0

Social,Cultural
Projects 0(-100) 8(33) 8(-33)

Energy Aid 0 0 0
(HFO)

Subtotal 1,725(-73) 8(33) 1,733(-73)

TOTAL 64,773(-73) 75,525(-8) 140,258(-22)
----- ----------- --------- --------------
(1)Source: Ministry of Unification
(2)Note: Figures in parenthesis are comparisons of the same
month in 2008.

15. (SBU) DPRK Profits from Monopoly on Inter-Korean Shipping Route:
Chosun Ilbo reported August 10 that the DPRK makes USD 1,800 for
every 40-foot container shipped on the Busan-Rajin route, which is
about 4.4 to 12 times more expensive than the shipping charges on
the Busan-Shanghai route, a similar distance. The MOU and other
sources said that the DPRK unilaterally raised the container
shipping price from USD 1,500 to USD 1,800 per 40-foot container in
August 2008. An MOU official was quoted as saying, North Korea
notified us of the raise of the inter-Korean shipping charge without
prior negotiation, just as the DPRK did with the request to raise
wages for North Korean workers at the Kaesong Industrial Complex. A
DPRK ship which operates between Busan and Rajin three to four times
a month made USD 3 million in 2008, and USD 1.55 million in the
first half of 2009.

SEOUL 00001563 005 OF 005

Foreign Aid
-----------

16. (SBU) Switzerland to Withdraw DPRK Assistance Projects by 2011:
RFA reported August 7 that the Swiss Agency for Development and
Cooperation (SDC) has decided to gradually withdraw its humanitarian
assistance projects in the DPRK by 2011. Katherine Zellweger, SDC's
DPRK Office Director said, "The Paris Declaration on Aid Efficiency
recommended Switzerland work in fewer countries and be more focused.
The Swiss parliament decided that the SDC had to cut the DPRK
program. So far there are no implications. But financial
transactions with the DPRK might become more difficult in the
future." The Swiss Government has been maintaining humanitarian
assistance projects in the DPRK but financial support has been
continuously decreasing since October 2006. The Swiss Government
spending for DPRK projects was: USD 7 million (2006), USD 6.5
million (2007), USD 6 million (2008) and USD 5.4 million (2009),
respectively.

17. (SBU) French NGO Donates 400 Rabbits to DPRK: RFA reported
August 31 that the France-based NGO Premiere Urgence plans to ship
400 rabbits to seven farms in North Pyongang and North Hwanghae
Provinces. Premier Urgence plans to provide feeding techniques to
the DPRK to improve rabbit fertility rates. RFA said the NGO spends
USD 208 million a year to assist the DPRK's agricultural sector and
to help with hospital refurbishment.

TOKOLA

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