VZCZCXRO4731
RR RUEHVK
DE RUEHUL #1389/01 2430802
ZNR UUUUU ZZH
R 310802Z AUG 09
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC 5509
RUCPDOC/USDOC WASHDC 9088
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 6635
RUEHBJ/AMEMBASSY BEIJING 6561
RUEHGP/AMEMBASSY SINGAPORE 7144
RUEHHK/AMCONSUL HONG KONG 3981
RUEHSH/AMCONSUL SHENYANG 4965
RUEHVK/AMCONSUL VLADIVOSTOK 1707
RUEHIN/AIT TAIPEI 3928

UNCLAS SECTION 01 OF 06 SEOUL 001389 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ENRG ETRD KN
SUBJECT: NORTH KOREA ECONOMIC BRIEFING - AUGUST 2009 
 
¶1. (U) This cable is sensitive but unclassified and not/not 
intended for Internet distribution. 
 
------------- 
In This Issue 
------------- 
 
-- ROK Think Tank:  DPRK Faces Worst Economic Crisis since 1994 
-- DPRK Develops Wind Power Capacity 
-- Number of DPRK Mobile Phone Users Increases to 48,000 
-- DPRK Begins Mobile Telephone News Service 
-- Pyongyang Opens First Fast Food Restaurant 
-- DPRK Launches First TV Advertisements for Beer 
-- DPRK Establishes Food Industry Ministry 
-- New Resort Hotel Opens in South Hamgyong Province 
-- China Bars Strategic Material Shipment to the DPRK 
-- DPRK-China Trade Fell in May 
-- DPRK Grain Imports from China Expected to Rise as China Scraps 
Export Tariffs 
-- Koryo Air Expands Service between Pyongyang and China But Faces 
Safety Concerns 
-- U.S. CRS Staffer:  DPRK Earns USD 2 Billion a Year in Arms Trade 
with Iran 
-- DPRK Software Industry Explores Overseas Market 
-- ROKG Tightens Restrictions on Luxury Goods to the DPRK 
-- ROKG Imposes Financial Sanctions on DPRK Firms and Individuals 
-- ROK Automaker in DPRK Makes First Profit 
-- Number of KIC Workers Rises 
-- Inter-Korean Trade Fell 19.7 Percent in June 2009 
-- China Reportedly Sends 370 Military Vehicles to the DPRK 
-- U.S. NGO Helps DPRK Agricultural Industry 
-- French NGO Restores DPRK Reclaimed Land 
 
 
Domestic Economy 
---------------- 
 
¶2. (SBU) ROK Think Tank: DPRK Faces Worst Economic Crisis Since 
1994:  According to the Review of the North Korean Economy, a 
monthly report released by the ROKG-run Korea Development Institute 
(KDI), North Korea is now facing the worst economic crisis since Kim 
Il-sung died in 1994.  North Korea will likely go into a deeper 
slump and become unable to feed its people by the end of 2009 unless 
it quickly resolves a long-standing nuclear stalemate with the 
international community.  Succession issues, United Nations 
sanctions and frozen inter-Korean relations weighed heavily on the 
DPRK economy in the first half of this year.  (Inter-Korean trade in 
the first half of this year fell 26 percent from the same period of 
2008 to USD 653 million.)  According to KDI, anecdotal evidence 
varies.  On the one hand, foreigners who have recently visited 
Pyongyang say there are no visible signs of an economic downturn as 
large scale construction works continue and mobile phone 
subscriptions rise.  In contrast, according to representatives of 
the World Food Program and international NGOs who have visited 
remote areas of the DPRK, a majority of ordinary North Koreans face 
a serious food crisis. 
 
¶3.  (SBU) DPRK Develops Wind Power Capacity:  The Ministry of 
Unification (MOU) reported July 15 that North Korea has recently 
completed a wind power electricity generation and distribution 
system in South Hwanghae Province.  The MOU quoted the Korea Central 
News Agency (KCNA) as saying that Unchon County in South Hwanghae 
Province has set up thousands of wind power generators in houses and 
public buildings.  The generators, which have been installed in 
Haeju city, Gangryong, Ongjin, Yonan, Jangyon, Anak and Chongdam 
counties, are used for household electricity. 
 
¶4.  (SBU) Number of DPRK Mobile Phone Users Increases to 48,000: 
Chosun Ilbo reported July 30 that the number of mobile phone users 
in the DPRK reached 48,000 persons as of the end of June this year. 
Orascom, an Egyptian service provider, began the mobile service in 
December 2008 and plans to expand the service area from Pyongyang to 
the entire country by the end of 2009.  The newspaper quoted Naguib 
Sawaris, chairman of Orascom, who visited Seoul on July 14-15 for a 
Global System for Mobile Communications (GSM) Association 
conference, as saying his company plans to begin 3G mobile service 
in major cities such as Kaesong within the year and to expand the 
 
SEOUL 00001389  002 OF 006 
 
 
number of mobile phone subscribers to 100,000.  The company plans to 
invest USD 500 million over the next five years.  Officials of the 
North Korean Workers' Party and the DPRK government are reportedly 
banned from using mobile phones for security reasons.  Ordinary 
North Koreans, whose monthly income is about 4,000 North Korean won 
(USD 30), cannot afford the service due to the high price of 
handsets, which cost at around USD 300-500, and the subscription 
fee.  The company said that it will soon begin the High Speed Packet 
Access service at the request of foreigners who want to use wireless 
Internet in the DPRK.  Orascom currently operates 114 base stations 
and one mobile phone exchange office. 
 
¶5.  (SBU) DPRK Begins Mobile Phone News Service:  Yonhap News Agency 
reported July 6 that Ryomyong (www.ryomyong.com), a website run by 
the North Korean Council for Reconciliation and Cooperation, has 
recently begun a mobile news service.  The service provides news 
reports by North Korea's state-run Rodong Shinmun and the Korea 
Central News Agency.  In addition, the service includes a collection 
of North Korean music, images and video clips of North Korean books, 
art, regional specialties, trademarks, Mount Baekdu, the Daedong 
River and historical relics in the DPRK.  Accessible mobile phone 
sets include Motorola, Samsung, Phillips and all WAP-applicable 
mobile phone sets, the Website specified. 
 
¶6.  (SBU) Pyongyang Opens First Fast Food Restaurant:  Chosun Sinbo, 
a pro-North Korea newspaper based in Japan, reported July 25 that 
North Korea has recently opened its first "fast food" restaurant in 
Pyongyang.  The restaurant, named Samtaeseong, sells hamburgers, 
French fries, waffles and draft beer for prices ranging from USD 
0.60 to USD 1.70.  It was set up by a Singaporean firm which 
provided training and equipment, while the DPRK provided employees 
and food.  Croissants and hot dogs will be added to the menu soon. 
Ko Jong-ok, manager of the restaurant was quoted by APTN on July 30 
as saying, "Our restaurant specializes in serving popular food that 
is well-known throughout the world.  It is not so long since its 
opening, but our restaurant has become popular among North Koreans 
and foreigners."  She also said the restaurant plans to open 
branches in many places within Pyongyang in the near future.   It 
opens from 11 am through 9 pm everyday with 15 female staff who are 
in their 20s.  According to a 2008 report by Radio Free Asia (RFA), 
the DPRK had unsuccessfully attempted to entice McDonald's into 
opening a franchise in North Korea. 
 
¶7.  (SBU) DPRK Launches First TV Ads for Beer:  North Korea's 
Central Television Broadcasting launched a television advertising 
campaign for locally brewed Taedonggang beer.  The ad features a 
young woman in traditional Korean dress serving trays of beer to a 
man in a Western suit.  The two-and-a-half minute advertisement 
says, "It represents the new look of Pyongyang...  It will be a 
familiar part of our lives."  Observing it is rare for the DPRK to 
make television commercials, some ROK experts on North Korea believe 
the commercial was intended as propaganda to demonstrate improvement 
in the DPRK economy.  Taedonggang Beer factory bought Britain-based 
Ushers Beer Brewery and shipped it in its entirety from the United 
Kingdom in 2002.  Yonhap News Agency reported August 9 that sales of 
the beer have significantly jumped since the advertisement was 
launched. 
 
¶8.  (SBU) DPRK Establishes Food Industry Ministry:  Korea Central 
News Agency reported July 22 that the Presidium of the DPRK Supreme 
People's Assembly issued a decree setting up a "Ministry of Food and 
Daily Necessities Industry."  Local media outlets analyze this could 
be related to a 2009 New Year's editorial published by the KCNA, in 
which North Korea vowed to "solve food problems by our own efforts" 
and rebuild North Korea's ailing economy by 2012.  KCNA gave no 
further details on the new Ministry. 
 
¶9.  (SBU) New Resort Hotel Opens in South Hamgyong Province:  KCNA 
reported July 28 that North Korea has built a "world-class" hotel 
with various modern facilities on the Majon Amusement Complex on the 
east coast, South Hamgyong Province, North Korea.  It said that the 
Majon Hotel is equipped with first-class accommodation and 
recreation facilities such as an indoor swimming pool, a steam 
sauna, a public bath and a beach resort.  It did not specify size of 
the hotel but the Majon Amusement Complex is reportedly situated on 
nearly 3 million square meters. 
 
 
 
SEOUL 00001389  003 OF 006 
 
 
Foreign Trade and Investment 
---------------------------- 
 
¶10.  (SBU) China Bars Strategic Material Shipment to the DPRK:  A 
Chinese customs official in Dandong, a border city between China and 
the DPRK, said Chinese authorities discovered a shipment of 
vanadium, a strategic metal with missile and nuclear applications, 
in fruit boxes on a truck traveling to the DPRK, according to a July 
29 Associated Press report.  The authorities found USD 29,300 worth 
of the vanadium during a routine check.  Vanadium alloys are used 
for missile castings or jet engines, but it was not immediately 
clear whether the intercepted metal was designed for such 
applications. 
 
¶11.  (SBU) DPRK-China Trade Fell in May:  The Ministry of 
Unification (MOU) reported that the Chinese Customs Office on July 
22 announced bilateral trade between the DPRK and China in May fell 
6.5 percent from the same month a year ago to USD 192 million.  DPRK 
exports to China in May dropped 2.9 percent to USD 63.6 million and 
imports were also down 8.2 percent to USD 128 million.  However, 
DPRK exports to China of anthracite and zinc increased by 160 
percent and 2,370 percent, respectively from a year earlier.  DPRK 
imports of soy beans for seedlings and dried fish also jumped by 
3,017 percent and 161 percent, respectively, in May from a year 
earlier.  Bilateral trade between the DPRK and China from January to 
May this year fell 5.7 percent to USD 833 million.  DPRK exports to 
China from January to May this year rose 9.1 percent to USD 270 
million, while imports dropped 11.6 percent to USD 564 million. 
 
DPRK - China Trade in 2009 (Monthly) 
 
       DPRK             DPRK 
       Exports          Imports 
        To     Growth    From    Growth    Overall    Growth 
Month  China   Percent   China   Percent    Trade     Percent 
-----  -----   -------   -----   -------    ------    ------- 
Jan.   41,460   -13.0    84,758   -37.4    126,218     -31.0 
Feb.   40,558    26.9    91,042    49.1    131,600      41.4 
Mar.   57,339    25.8   129,057   -23.8    186,396     -13.2 
Apr.   66,560    18.1   130,547    -1.0    197,107       4.7 
May    63,593    -2.9   128,155    -8.2    191,748      -6.5 
TOTAL 269,510     9.1   563,559   -11.6    833,069      -5.7 
 
Source:  The Chinese Customs Office 
 
¶12.  (SBU) DPRK Grain Imports from China Expected to Rise as China 
Scraps Export Tariffs:  RFA reported July 7 that the Chinese 
government abolished export tariffs on grains beginning from July 1 
this year.  The change is intended to encourage Chinese farmers to 
improve grain productivity in addition to preventing oversupply. 
(Last December, the Chinese government raised export tariffs on 
grains to secure domestic supply and restricted all grain exports 
except for exports to Hong Kong and Macau because grain prices 
skyrocketed.)  RFA analyzes that China's exports of grains to the 
DPRK are expected to grow. 
 
¶13.  (SBU) Koryo Air Expands Service between Pyongyang and China But 
Faces Safety Concerns:  RFA reported July 15 that North Korea's Air 
Koryo plans to expand air routes with China with a new 
Pyongyang-Shanghai flight.  The air carrier also plans to start 
operating a chartered flight between Pyongyang and Qingdao.  Air 
Koryo currently operates direct air routes only to Beijing and 
Shenyang.  Air China, which also operates flights between Beijing 
and Pyongyang, has recently reduced flight service to once a week 
from three times a week.  JoongAng Daily on July 20 reported that 
Air Koryo is increasingly losing favor among world aviation 
officials due to safety problems.  Dubai and Qatar rejected requests 
from Air Koryo to launch non-regular flights in May, citing safety 
problems.  International organizations such as World Health 
Organization and UNICEF advise their workers to refrain from flying 
Air Koryo.  Moreover, the European Union banned Air Koryo flights in 
the region and the International Air Transport Association failed 
the air carrier during a safety inspection in December 2007.  Air 
Koryo currently owns 20 aircraft (mainly old Russian models) and 
only 10 are currently in operation.  It purchased a new aircraft 
(TU-204) from Russia in December 2007 (see photo). 
 
¶14.  (SBU) U.S. CRS Staffer:  DPRK Earns USD 2 Billion a Year in 
 
SEOUL 00001389  004 OF 006 
 
 
Arms Trade with Iran:  Chosun Ilbo reported that Larry Niksch, a 
specialist on the DPRK with the Congressional Research Service, said 
on July 15 that North Korea earns over USD 2 billion annually in 
arms deals with Iran.  Niksch said at a conference held by the Cato 
Institute on July 14 that Iran, Syria and Burma have recently become 
major customers of North Korea.  He claimed that North Korean 
scientists and engineers as well as missiles, missile parts and 
technical drawings for missiles are being transferred by air between 
the DPRK and Iran.  Niksch said flights between Pyongyang and Tehran 
should be a key target for sanctions against the DPRK.  He called on 
China to block such deals by banning overflights.  He also claimed 
all food aid from China to North Korea has been diverted to 
soldiers, therefore reduction of Chinese food aid to the DPRK would 
exert substantial pressure. 
 
¶15.  (SBU) DPRK Software Industry Explores Overseas Market:  Yonhap 
News Agency cited a July 13 DPRK Internet portal, Naenara 
(www.kcckp.net), report that North Korea had recently published a 
list of leading software companies in the DPRK, hoping to win 
increased orders from overseas.  The DPRK state-run software 
developers were established almost two decades ago to meet domestic 
demand in the DPRK as well as aiming at exports to China, Japan and 
Europe.  North Korean leader Kim Jong-il began to place increased 
focus on the DPRK's computer industry in 1990, setting the 
industry's development as one of the state's prime goals.  The DPRK 
has since set up the Chosun Computer Center in Pyongyang as a base 
for North Korea's computer industry and a special after-school 
program for talented students.  DPRK elementary schools have adopted 
computer and English classes as regular curriculum since September 
¶2008. 
 
Inter-Korean Economic Cooperation 
--------------------------------- 
 
¶16.  (SBU) ROKG Tightens Restrictions on Luxury Goods to the DPRK: 
The MOU reported July 10 that it will tighten controls of South 
Korean goods shipped to the DPRK, banning most luxury items in 
accordance with the United Nations Security Council Resolution 1874 
which was adopted following North Korea's second nuclear test in May 
this year.  The MOU said that prior authorization will be required 
for South Koreans to bring the following items to the DPRK: 
 
-- Wine and distilled liquor 
-- Cosmetics: Perfume, skin care and make-up cosmetics 
-- Leather Goods:  Handbags, trunks and suitcases 
-- Fur 
-- Carpets and Rugs 
-- Pearls and Jewelry 
-- Electric Equipment: Televisions, cameras, video cameras and 
projectors 
-- Automobiles: Passenger vehicles, motorcycles and sidecars 
-- Ships: Yachts, leisure boats and canoes 
-- Optical Equipment:  Professional cameras and film projectors 
-- Watches:  Wrist and pocket watches 
-- Musical Instruments:  Pianos, harpsichords and strings 
-- Art collections and Antiques 
 
¶17.  (SBU) The ROKG will allow exceptions for the ROKG and business 
officials who bring the listed items during travel between the two 
Koreas on official duty or for personal use during their stay in the 
DPRK. 
 
¶18.  (SBU) ROKG Imposes Financial Sanctions on DPRK Firms and 
Individuals:  South Korea's Ministry of Strategy and Finance (MOSF) 
said July 27 that the ROKG will impose financial sanctions on five 
North Korean officials and five institutions for their alleged 
activities in proliferation of weapons of mass destruction.  It is 
the first time the ROKG has imposed sanctions on North Korean 
individuals.  The measures were at the request from the United 
Nations Security Council.  The five designated North Korean 
officials include Ri Je-son, director of the General Bureau of 
Atomic Energy, Yun Ho-jin, director of Namchongang Trading 
Corporation, Ri Hong-sop, and former director of the Yongbyon 
Nuclear Research Center, Hwang Sok-hwa, a senior official of the 
General Bureau of Atomic Energy, and Han Ru-ro, director of Korea 
Ryongakan General Trading Corporation.  The five entities are the 
General Bureau of Atomic Energy, Hong Kong Electronics, Namchongang 
Trading Corporation, Korea Kyoksin Trading Corporation and Korean 
 
SEOUL 00001389  005 OF 006 
 
 
Tangun Trading Corporation.    In June this year, the ROKG had 
imposed economic sanctions on (North) Korea Mining Development 
Trading Corporation, Tanchon Commercial Bank and Korea Ryongbong 
General Corporation. 
 
¶19.  (SBU) ROK Automaker in DPRK Makes First Profit:  Local media 
outlets reported July 15 that Pyeonghwa Motors, a ROK firm operating 
an automobile production joint-venture in Nampo, North Korea, has 
posted its first net profit (USD 700,000) since it began production 
in 2002.  The company's spokesman was quoted as saying that 
Pyeonghwa Motors has sent USD 500,000 of the total net profit to its 
headquarter in Seoul via South Korea's Woori Bank branch in Hong 
Kong.  The company said that it sold a total of 652 units in 2008. 
It also said that the company's profits are picking up, with this 
year's sales already surpassing 740 cars.  Park Sang-kwon, President 
and CEO of Pyeonghwa Motors said that the company runs on a strictly 
cash basis, with no credit sales or discounts.  A sedan costs about 
USD 18,000, and the company accepts only U.S. dollars or Euros. 
Customers are mostly trade agencies who have easy access to foreign 
currency.  Auto insurance is also available, for about 300 Euros 
(USD 428) a year.  Park also said that the company is benefitting 
from the DPRK's efforts to fulfill its campaign to make the country 
more prosperous by the one hundredth anniversary of Kim Il-sung's 
birth in 2012.  Production is in full swing as 340 North Korean 
employees work extra hours, some doing the night shift in accordance 
with North Korea's so-called "150-day Battle" a labor productivity 
campaign that continues until September this year.  Pyeonghwa Motors 
had imported partially built cars (semi-knockdown kits) at first, 
and completed them with spare parts in partnership with Italy's Fiat 
and China's Brilliance Automotive Holdings.   The company shifted to 
a kit process with advanced technology, locally assembling entire 
parts with the oversight of South Korean, Japanese and Chinese 
engineers. 
 
¶20.  (SBU) Meanwhile, Chosun Sinbo reported July 14 that Sungri 
Motor Complex, North Korea's sole home-grown automaker, aims to 
expand its annual production to 10,000 units by 2012, a level not 
reached since its peak in the 1970s.  It said that the production 
decreased after the 1970s, the workforce of the company fell to 75 
percent of the peak years due to the economic hardships in the late 
1990s.  The automaker began production of trucks named "Sungri 
58-type," "Sungri 61-type," and "Jaju (independence) 64-type" in 
April this year. 
 
¶21.  (SBU) Number of KIC Workers Rises:  According to the MOU on 
July 13, the total number of North Korean workers at the Kaesong 
Industrial Complex (KIC) reached 40,255 people as of the end of June 
this year, an increase of 1,324 workers from end of 2008. 
Currently, 109 ROK firms operate at KIC, up from 93 firms as of the 
end of 2008. 
 
¶22.  (SBU) Inter-Korean Trade Fell 19.7 Percent in June 2009: 
According to data recently released by the MOU, inter-Korean trade 
in June fell 20 percent to USD 118 million.  Trade between the two 
Koreas has declined for ten consecutive months since September last 
year.  Commercial transactions between the two Koreas declined 16 
percent to USD 117 million, while non-commercial transactions fell 
88 percent to USD 1 million, reflecting the chilled inter-Korean 
ties.  Meanwhile, cumulative inter-Korean trade in the first half of 
the year drop 26 percent over the same period of a year earlier to 
USD 653 million.  ROK exports to the DPRK in the first half of the 
year also declined 41.8 percent to USD 267 million, while the 
imports slightly fell 8.7 percent to USD 386 million. 
 
INTER-KOREAN TRADE IN JUNE 2009 
------------------------------- 
(UNIT: USD THOUSAND, PERCENT) 
 
Commercial Transactions 
----------------------- 
                  South Exports South Imports      Total 
                  To North      from North 
                  ------------- -------------      ----- 
General Trading    1,038(-72)    17,904(-34)   18,942(-39) 
 
Processing-on 
Commission(POC)   15,238(12)      9,542(-14)   24,780(-0.1) 
 
 
SEOUL 00001389  006 OF 006 
 
 
Kaesong 
Industrial 
Complex           37,599(-21)    32,343(35)    69,942(-3) 
 
Mt. Kumgang 
Tourism Project      279(-96)       117(-86)      396(-95) 
 
Other Economic 
Projects           1,443(-36)     1,246(2)       2,689(-23) 
 
Light Industry 
Cooperation            0               0             0 
 
Subtotal          55,597(-25)    61,152(-5)    116,749(-16) 
 
Non-Commercial Transactions 
--------------------------- 
               South Exports South Imports      Total 
               To North      from North 
               ------------- -------------      ----- 
NGO Aid           990(-83)        0(0)         990(-83) 
 
Government Aid      0             0              0 
 
Social,Cultural 
Projects            0             0              0 
 
Energy Aid          0             0              0 
(HFO) 
 
Subtotal          990(-88)        0(-100)      990(-88) 
 
TOTAL          56,587(-31)   61,152(-5)    117,739(-20) 
-----          -----------------------     -------------- 
 
(1)Source: Ministry of Unification 
(2)Note: Figures in parenthesis indicate the comparison from the 
same month of 2008. 
 
 
Foreign Aid 
----------- 
 
¶23.  (SBU) China Reportedly Sends 370 Military Vehicles to the DPRK: 
 RFA reported July 2 that China has recently shipped 320 military 
trucks and 50 military jeeps to the DPRK.  RFA cited a Chinese 
source claiming the shipment of military vehicles was made at the 
request of the DPRK Minister of Armed Forces who secretly visited 
China on June 10 this year. 
 
¶24.  (SBU) U.S. NGO Helps DPRK Agricultural Industry:  According to 
Voice of America on July 31, the Mennonite Central Committee, a 
U.S.-based non-governmental organization, plans to spend USD 1 
million to help the DPRK agricultural sector.  It will initiate a 
conservation agriculture project in three cooperative farms in 
Hwanghae Province, North Korea, including the provision of 
agro-machinery and technical training.  The project is scheduled to 
be completed in December 2011. 
 
¶25.  (SBU) French NGO Restores DPRK Reclaimed Land:  RFA reported 
July 28 that Triangle Generation Humanitaire (TGH), a French NGO 
helping the DPRK has recently restored a land reclamation project on 
the west coast of North Korea.   The reclaimed land, the largest in 
the DPRK with a total of 3,200 hectares, was originally reclaimed in 
1994 but mismanaged dykes rendered the site useless by 1995.  TGH 
said that the restoration project will help in mitigating food 
shortage problems in the region.  Around 7,000 North Koreans in the 
region took part in the construction works and they received food 
supplied by the French NGO.  TGH has carried out this project with 
the financial support of 2.1 million Euros (USD 3 million) by the 
Swedish government and the European Union. 
 
 
TOKOLA