Cablegate: North Korea Economic Briefing - November 2009

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RR RUEHVK
DE RUEHUL #1879/01 3350442
ZNR UUUUU ZZH
R 010442Z DEC 09
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC 6355
RUCPDOC/USDOC WASHDC 9467
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 7052
RUEHBJ/AMEMBASSY BEIJING 6993
RUEHGP/AMEMBASSY SINGAPORE 7517
RUEHHK/AMCONSUL HONG KONG 4051
RUEHSH/AMCONSUL SHENYANG 5370
RUEHVK/AMCONSUL VLADIVOSTOK 1776
RUEHIN/AIT TAIPEI 4303

UNCLAS SECTION 01 OF 04 SEOUL 001879

SENSITIVE

SIPDIS

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

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

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In This Issue
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-- Cabinet Considers New Economic Campaign
-- Economic "Informationalization" Declared Key to Success
-- DPRK Modernizes Steel Complex
-- English Classes in Pyongyang Gaining Popularity
-- UN Experts Allege Evades Sanctions
-- China Approves Tumen River Development
-- China Stops Publishing DPRK Trade Figures
-- DPRK-Hong Kong Trade from January to September 2009 Surges
-- ROKG Tightens Import Procedures of DPRK Sand, Anthracite and
Mushrooms
-- Inter-Korean Trade Rises for Two Straight Months
-- ROKG Sets Aside Budget for DPRK Aid
-- ROKG Supports DPRK Environmental Improvement
-- U.S. NGO Helps DPRK Housing Project
-- French NGO Helps Anti-DPRK Radio Stations

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

2. (SBU) Cabinet Considers New Economic Campaign: North Korea's
cabinet recently discussed plans for the "100-day campaign" to boost
steel production, according to the North's state-run daily, Minju
Chosun on October 27. This campaign was launched in late September,
which followed immediately after the end of the 150-day campaign.
The original 150-day campaign was an effort launched by the DPRK in
April 2009 to establish an economically powerful country by 2012.
The cabinet members also discussed accelerating the construction of
large and medium-sized power plants to address persistent
electricity shortages. North Korea's Premier, Kim Yong-il, said
that if the 100-day campaign is a success by year's end, it will be
a "great revolutionary turning point."

3. (SBU) Economic "Informationalization" Declared Key to Success:
In a recent edition of Chollima (an influential DPRK monthly
magazine), the DPRK emphasized "informationalization" in economic
management and activities in order to become an "economic power."
In its article titled "Informationalization of Economic Management
and Administrative Activity," it stated that "in order to meet the
demands for science and technology development in the era of the
information industry, improvement of socialist economic management
has emerged as an important issue." The article also noted that
while construction of basic facilities was an urgent task, computers
and IT resources should be a priority in order to "informationalize"
economic management and administrative activities. The government
should then modernize communication equipment. Further development
of basic management systems in education, information theory
research, systems engineering, legal administration, and other
economic science fields would also be necessary. North Korea's
state-run Rodong Sinmun has also recently emphasized
"informationalization," referring to the current era as the
"information economy age" and the "informationalization age."

4. (SBU) DPRK Modernizes Steel Complex: Chosun Sinbo, a pro-North
Korea newspaper based in Japan reported November 20 that North
Korea's largest steel mill, Kim Chaek Steel General Complex (KCSGC)
has recently modernized. KCSGC claims to have produced pig iron
with domestically produced fuels such as anthracite and lignite,
whereas in the past, it had to import coal for fuel. According to
Chong Yong-choon, manager of the steel mill complex, "KCSGC has
successfully solved technical problems enabling production of pig
iron by operating a large-sized blast furnace." Chong also said
KCSGC plans to install a larger blast furnace by 2012. In addition,
a large-sized oxygen generator was installed to improve furnace
efficiency. The DPRK is currently refurbishing the largest furnace
at the KCSGC. Chosun Sinbo claims that the KCSGC in November 2009
will produce the largest volume of steel in recent years.

5. (SBU) English Classes in Pyongyang Gaining Popularity: Many
North Koreans living in Pyongyang have enrolled in foreign-language
classes offered at the Grand People's Study House, according to a

SEOUL 00001879 002 OF 004

recent monthly magazine published by the Chosun Sinbo. English is
the most popular foreign language, followed by Chinese and Russian.
North Korean authorities plan to introduce more English courses to
meet the soaring demand. DPRK expert, Dr. Cheong Seong-chang at the
ROK Sejong Institute, said English is a major tool that enables
North Koreans to earn cash abroad. Cheong went on to say that, "In
North Korea, men involved in foreign trade and export industries are
considered the most eligible bachelors since they work closely with
Europeans and Southeast Asians and therefore need to speak English
when doing business." Cheong also speculated the popularity of
English as a second language could be related to the anticipated
next leader's (Kim Jung-un, third son of Kim Jong-il who has spent
several years overseas) personal traits and ambitions.

6. (SBU) UN Experts Allege DPRK Evades Sanctions: According to a
recent report released by the United Nations panel responsible for
implementing UN Security Council Resolutions pertaining to the DPRK,
the DPRK continues to evade UN sanctions and import luxury goods for
its leadership. In July 2009, Italy blocked the sale of two yachts
destined for North Korean leader Kim Jong-il. Generally, North
Korean companies and banks circumvent UN sanctions by conducting
business through subsidiaries. The report said illicit arms sales
have increasingly become one of the country's principal sources of
foreign currency. The six-person UN panel said the DPRK exported
arms to Africa, Southeast Asia, the Middle East and Latin America,
yet only a small percentage of North Korea's arms trade has been
reported. The UN experts group will continue to monitor North
Korea's implementation of the UNSCR and plans to finalize its report
in May 2010 by drawing up a list of North Korean firms, individuals
and goods to be added to the sanctions program.

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

7. (SBU) China Approves Tumen River Development: The Chinese
government has approved development of the Tumen River Delta to
boost cross-border cooperation in the Northeast Asian region,
according to China Daily. In 1995, China, Russia, the DPRK, the
ROK, and Mongolia ratified the agreement on the Establishment of the
Cooperation Commission for the Tumen River Economic Development Area
supported by the United Nations Development Program. Japan
participated as an observer. In 2005, the five countries agreed to
extend the agreement for another ten years and expand the area to
the Greater Tumen Region in an effort to strengthen cooperation for
economic growth and
sustainable development. The Tumen River basin runs along North
Korea, China and Russia's borders and is the center of Northeast
Asia transportation and trade, according to the ROK-based daily,
Hankyoreh. The plan includes the development of a
Changchun-Jilin-Tumen (all in China) economic belt, which would be
facilitated by new high-speed rail service between Tumen and
Changchun and a highway connecting Jilin with Rason and Chongjin in
the DPRK. There are also plans for an oil refinery in Hunchun
(China) that would process 10 million tons per year. A delegation
of DPRK scholars who attended a recent seminar at China's Yanbian
University regarding the Tumen River project expressed great
interest in the project. However, a South Korean expert voiced
concerns that China intends to pull the DPRK into its economic
sphere through the Tumen River Development project and other recent
economic initiatives. China has already agreed to build a new
bridge over the Amnok (Yalu) River, which would aid development of
China's three Northeastern provinces, including Jilin, by easing
access to North Korea's natural resources. It would also secure a
distribution route that includes Rason and Chongjin (DPRK).

8. (SBU) China Stops Publishing DPRK Trade Figures: According to
the Chinese Customs Office (CCO), China has stopped publishing
bilateral trade figures of the DPRK. Previously, the CCO released
China's trade figures with the DPRK on a monthly basis. However, in
its release on November 10, destination and origin statistics on
China's imports and exports for September, 2009 gave no separate
numbers for the DPRK, for the second straight month since August,
2009. A Chinese official at the CCO said without further
clarification, "We are no longer issuing trade data regarding the
DPRK." Thus, CCO produces monthly bilateral figures with all
countries except the DPRK. Analysts have used Chinese statistics to
gauge economic ties between China and the DPRK.

SEOUL 00001879 003 OF 004

9. (SBU) DPRK-Hong Kong Trade from January to September 2009 Surges:
Hong Kong's two-way trade with the DPRK from January to September
2009 totaled USD 23.2 million, almost double that of 2008, according
to recent figures released by the Hong Kong Trade Development
Council. Hong Kong's exports to the DPRK in the period amounted to
USD 22.1 million, a 247 percent increase from 2008, while imports
from the DPRK totaled USD 1.1 million, a 30 percent drop. Major
items that Hong Kong shipped to the DPRK included pharmaceuticals,
measuring instruments, telecommunication equipment, and electronics.
Imported goods included gold, silver, fresh vegetables, cigarettes
and watches.

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

10. (SBU) ROKG Tightens Import Procedures of DPRK Sand, Anthracite
and Mushrooms: The Ministry of Unification (MOU) announced October
27 that it will tighten procedures for importing sand, anthracite,
and mushrooms from the DPRK. These items will now require MOU
approval prior to leaving the North. Previously, ROK importers of
these items reported to the ROK Customs Service when these goods
reached the border. The MOU believes these new measures will
improve transparency in inter-Korean trade. Sand was the largest
import item from the DPRK, while anthracite was the ninth largest in
2008.

11. (SBU) Inter-Korean Trade Rises for Two Straight Months:
Inter-Korean trade rose for the second straight month in October
2009, according to figures released by the MOU. Trade between the
two Koreas in October 2009 rose six percent to USD 173 million.
South Korea's exports to the DPRK rose 12 percent to USD 72 million,
while imports from the DPRK increased two percent to USD 101
million. The MOU indicated that the upward trend can be attributed
to continuing recovery in global trade conditions since July 2009
and improved inter-Korean relations due to Inter-Korean Red Cross
talks and reunion of separated families at Mount Geumgang in October
2009. Cross-border restrictions were also removed on September 1,
2009.

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

12. (SBU) ROKG Sets Aside Budget for DPRK Aid: According to the
2010 budget submitted to the National Assembly on November 13, MOU
will allocate 1.18 trillion won (USD 1.02 billion) for aid to the
DPRK. While the MOU has announced that there is no immediate plan
to resume aid to the DPRK, the MOU's budget contains funding for
humanitarian aid projects. USD 532 million, (a 14.2 percent
decrease from this year; USD 621 million due to lower international
grain prices) out of the total budget for humanitarian aid, has been
allocated for the possible resumption of rice (400,000 metric tons)
and fertilizer (300,000 metric tons) aid to the DPRK. Such
large-scale aid shipments were suspended after President Lee
Myung-bak took office in early 2008. NOTE: When aid is allocated
but not spent, such as in 2008, the funds stay in the Inter-Korean
Cooperation Fund for future use.

13. (SBU) ROKG Supports DPRK Environmental Improvement: South
Korea's Ministry of Environment (MOE) plans to contribute USD
850,000 to the Environment Trust Fund operated by the United Nations
Environmental Program (UNEP) to improve the environment in the DPRK.
The MOE had previously contributed USD 850,000 to the UNEP Fund in
2007 for such work in the DPRK. The fund will go toward improving
the water quality of the Daedong River, construction of eco-friendly
houses, and training environmental management specialists in the
DPRK.

14. (SBU) U.S. NGO Helps DPRK Housing Project: In a November 11
ground-breaking ceremony near Pyongyang, the U.S.-based Fuller
Center for Housing launched a partnership with North Korea's
Paektusan Academy of Architecture (PAA) to build 50 new houses. The
PAA will help manage the project, while professionals from the
United States and North Korea will work together to develop energy
efficient and environmentally sensitive housing plans.

SEOUL 00001879 004 OF 004

15. (SBU) French NGO Helps Anti-DPRK Radio Stations: According to
the November 14 Voice of America, Reporters Sans Frontiers (RSF), a
France-based NGO, plans to contribute USD 380,000 to three radio
programs based in the ROK -- Open Radio for North Korea, Free North
Korea Radio and Radio Free Chosun. The stations all produce and
transmit shortwave programs into North Korea. The funds will be
spent on program production, shortwave transmission and personnel.

STEPHENS

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