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RUCGEVC/JOINT STAFF WASHDC 0143
RUEAIIA/CIA WASHDC 0258
RHMFISS/COMUSKOREA J2 SEOUL KOR
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C O N F I D E N T I A L SECTION 01 OF 02 SHENYANG 000020 
 
SIPDIS 
 
E.O. 12958: DECL: TEN YEARS AFTER KOREAN UNIFICATION 
TAGS: CH ECON EFIN EIND EMIN KN KS PGOV PREL
SUBJECT: PRC-DPRK BORDER: CURRENCY REFORM UPDATES 
 
REF: SHENYANG 4 
 
Classified By: Consul General Stephen B. Wickman. For Reasons 
1.4 (b) and (d) 
 
¶1. (C) SUMMARY. February meetings with DPRK border contacts 
took the pulse of post-currency reform cross-border trade and 
investment. Contacts doubted the accuracy of reported widespread 
starvation and large-scale unrest. Urban-dwellers lost the 
most during the revaluation. DPRK children rely on rice for 
sustenance with little protein, and medical supplies are needed. 
While foreign direct investment and trade suffered in December and 
much of January, signs of pre-reform trade have begun to 
return to the border. For DPRK leaders, the negative fallout 
from the currency program was more widespread than reported 
in the press. End Summary. 
 
Everyone Suffers, Some More than Others 
--------------------------------------- 
 
¶2. (C)  During February 3-11 meetings with ConGenOffs, DPRK 
border contacts in Shenyang, Dandong, and Yanbian noted that 
the North Korean currency reform has had a negative 
short-term effect on the distribution and supply of basic 
goods and foodstuffs. However, they expressed doubt as to 
whether this short-term event was accompanied by the 
starvation and unrest reported by several South Korean and 
Japanese media outlets in the few months since the reform was 
initiated. At issue is who is suffering the ill effects. 
According to Liu Chensheng, Board Director of Shenyang North 
Korean Trade and Investment Consulting Company and member of 
the Liaoning Entrepreneur Association North Korea Department, 
rural residents suffered much less from reform than their 
urban counterparts. Liu told ConGenOff that farmers only 
receive official payment once a year, usually in December, 
and this payment was made in the new currency. Urban workers 
who already had money prior to reform, and who were receiving 
regular paychecks, lost a considerable amount converting 
their old currency to the new currency and bear the brunt of 
various restrictions on trade. 
 
¶3. (C)  A contact in Ji'an, a Sino-Korean hospital director 
who has made frequent personal and professional visits to 
Pyongyang and Manpo, Ji'an's sister city across the border, 
told ConGenOff that the outside world's fixation on "rice 
aid" and other grain exports to North Korea has distorted the 
reality of the poor nutrition situation. He recalled that 
three of his relatively young DPRK uncles and aunts 
(including one in Pyongyang) had suspiciously passed away in 
the same year in the late 1990s and suspected that they had 
died from starvation or one of several mass floods.  In 
recent years, his direct though limited experience suggested 
many DPRK children had sufficient carbohydrates, even a full 
bowl of rice to eat each day. However, their dietary deficit 
of fats, oils, protein, and limited fruits and vegetables had 
led to an overall decrease in their well being. He characterized 
the typical meal for these children as a full bowl of rice and 
a small, inadequate serving of pickled vegetables.  A Dandong NGO 
contact bristled that it was an oversimplification to reduce 
the DPRK population to rice- and corn-poor hungry people.  The 
DPRK has many other more pressing needs, such as a dire shortage 
of key medical supplies, he said. 
 
A Return to Normalcy? 
--------------------- 
 
¶4. (SBU) Traders in Dandong and Yanbian told ConGenOff that 
before the currency reform they were willing to accept small 
amounts of North Korean won with the understanding that their 
DPRK partners would eventually settle in RMB, euros, and/or 
dollars. While not large sums at each go, the transactions 
would accumulate and be settled in tradable currency. 
However, the revaluation made settlement of these amounts 
impossible and left them (along with their DPRK partners) 
holding the bag. 
 
¶5. (SBU) Liu Chensheng, who just returned from Dandong this 
week, told PolEconChief that border trade has already picked 
up (to a degree) in the last two weeks, and business is being 
done with foreign currencies again. This is in contrast to 
his December trip which saw a halt in cross-border activity. 
North Korean counterparts remain fearful, though, that this 
relaxation of the no forex policy could be reinstituted and 
that once again trade volumes would fall. (NOTE: According to 
Liu, the DPRK won exchange rate is back to pre-reform levels 
due to continuous sharp depreciation. End Note) As a result 
of the revaluation and the ensuing uncertainty, Liu said 
 
SHENYANG 00000020  002 OF 002 
 
 
foreign direct investment from such countries as China, 
Thailand, and Malaysia had come to an almost complete 
standstill. However, he fully expects investment flows to 
recommence in March 2010. Liu plans to return to DPRK in 
early March for meetings and to assess investment activities. 
 
Fallout for the Leadership 
--------------------------- 
 
¶6. (C) Liu, who previously characterized the currency reform 
as, in part, an effort by Kim Jong-Il to help poorer people 
who had no access to foreign exchange, also noted the 
negative collateral effects surprised the DPRK leadership 
(REFTEL). Liu said that Kim Jong-Il's heart had been in the 
right place but that the implementation was awful. The third 
son (Kim Jong-Un) definitely had a hand in the policy, but 
the decision was not his alone. Several officials had lost 
their jobs as a result of the currency reform, and not just 
the Finance Minister, as reported in the press. Liu mentioned 
to ConGenOff that the head of a major DPRK bank was among 
those sacked, but did not detail which one. 
 
WICKMAN