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Following the death of North Korean leader Kim Jong Il, the Korean peninsula appears to be in a state of calm as both North and South have turned their attention to what could be a momentous 2012 for both countries. The South faces presidential elections, which could result in an end to the hard-line policies of the outgoing incumbent, Lee Myung-bak. In the North, Kim Jong Un officially took his place as successor to his late fathers regime and it is still unclear which direction Un will steer the pariah state; the North is also preparing to celebrate a string of symbolic anniversaries, notably the centenary of regime founder Kim Il Sung, which could be accompanied by provocative statements of military prowess, such as a nuclear test.
It is unclear at this stage whether Kim Jong Un will want to resume North Koreas part in the long-stalled Six-Party Talks (SPTs) in 2012 concerning the denuclearisation of the state, despite diplomatic contact between Pyongyang and Washington in late 2011 having begun to lay the groundwork. Trips to China and Russia by late North Korean leader Kim Jong Il in the middle of 2011 led to Kim offering in late August to halt his countrys nuclear programme in return for the unconditional resumption of the SPTs. The US declined this offer, though talks with the North held in Geneva in October were described as very positive. Nonetheless, US Defence Secretary Leon Panetta gave little ground on a visit to South Korea in late October, insisting that the North remained a serious threat to regional security. On January 17, top SPTs negotiators from South Korea, Japan and the US gathered to discuss the next steps in the possibility of resuming the talks.
Regardless of the political outcome of 2012s election, South Korea continues to invest heavily in its military and to develop new weapon programmes with which to counter the North Korean threat. The Defence Ministry announced in September that the defence budget for 2012 would increase 5.6% to KRW33.1trn (US$28.9bn). Among Seouls most important procurement programmes is the Northrop Grumman RQ-4 Global Hawk high-altitude long-endurance UAV, which Washington confirmed would be made available to South Korea in September. The South is initially expected to acquire four Global Hawks for US$850mn, significantly enhancing its ability to conduct surveillance operations over the North. South Korea is also gearing up for the selection of a new fighter aircraft – a requirement called FX-III – with a decision expected in 2012.
In September, it was revealed that the South was developing a new supersonic cruise missile, while a contract for two new frigates for the navy is close to being awarded. A request for information for a new attack helicopter programme is also due to be issued in January 2012.
Regionally, South Korea has taken important steps to improve its defence ties with countries in South East Asia, especially Indonesia and the Philippines. Both countries are attempting to re-equip their militaries, and South Korea has positioned itself as a key partner in those efforts. This should bear fruit for the Korean defence industry in the years ahead.
However, in 2012 the Souths attention will be fixed firmly on the conduct of the North during its year of symbolically charged celebrations, and on the Norths approach to negotiations, should they in fact resume. The Norths stance could in turn help determine the course of elections in the South.
Table of Contents
Executive Summary .................... 5
SWOT Analysis .............. ...... 7
South Korea Security SWOT ................7
South Korea Defence Industry SWOT ................ ..... 8
South Korea Political SWOT ........................ 9
South Korea Economic SWOT .................... 10
South Korea Business Environment SWOT ................... 11
Global Political Outlook ............ .. 12
Landmark Political Events Looming In 2012 ................ 12
Global Flashpoints: Eurozone, Syria, Iran, Afghanistan, Korean Peninsula .......... ..... 12
Table: Election Timetable, 2012 ................ ... 17
United States .................. ... 21
Russia .................... ... 22
China ...................... 23
Wild Cards To Watch .................. ........ 24
North East Asia Security Overview ............ 27
The Geopolitical Importance Of North East Asia .............. ..... 27
Flashpoints And Faultlines In North East Asia .............. .. 28
The Evolution Of North East Asia ................ .. 36
Sino-US Power Struggle ............ .. 39
Chinese Influence In Asia: A SWOT Analysis .............. ... 40
US Influence In Asia: A SWOT Analysis ..............41
Table: Asian States And Their Relationships With China ............... 43
Emerging Geopolitical Patterns ................ ... 47
Emerging Geopolitical Patterns ................ ... 47
Security Risk Analysis .............. 50
Defence And Security Ratings ..................... 50
Table: Asia Pacific Regional Security Ratings .............. .. 50
Table: Asia Pacific State Vulnerability To Terrorism Index ............ .. 51
South Koreas Security Risk ........................ 51
City Terrorism Rating .................. ....... 52
Table: BMIs Asia City Terrorism Index ..............53
Political Overview ............54
Long-Term Political Forecast ..................... 54
Foreign Policy .......................... 56
Domestic Politics ...................... 62
Inter-Korean Relations .................. ..... 64
Security Overview ............69
Internal Security Situation ................69
External Security Situation ................69
Armed Forces And Government Spending ........77
South Korea Defence & Security Report Q1 2012
© Business Monitor International Ltd Page 4
Armed Forces ..................77
International Deployments ................77
Table: South Koreas Deployments ................ ....... 77
Weapons Of Mass Destruction .................... 78
Market Overview ..............79
Arms Trade Overview .................. ....... 80
Industry Trends And Developments ................ ...... 81
Procurement Trends And Developments ..............83
Competitive Landscape .................. ..... 83
Table: Key Players In South Koreas Defence Sector ............83
Industry Forecast Scenario ............ ..... 85
Armed Forces ..................85
Table: Armed Forces, 2000-2009 (000 personnel, unless otherwise stated) .......... ..... 85
Table: South Koreas Available Manpower For Military Services, 2011-2016 (aged 16-49, unless otherwise stated) ....85
Defence Expenditure .................. .. 86
Defence Expenditure .................. .. 86
Table: South Koreas Government Defence Expenditure, 2011-2016 ................ 86
Table: South Koreas Defence Expenditure By Changing % Of GDP, 2010-2016 (US$mn) ...... ... 87
Defence Trade ..................87
Key Risks To BMIs Forecast Scenario .............. ... 88
Macroeconomic Outlook .................. ... 89
Company Profiles ............94
Daewoo Shipbuilding & Marine Engineering (DSME) ................... 94
Doosan Heavy Industries & Construction .................... 96
Korea Aerospace Industries (KAI) ................ ........ 98
Samsung Thales ........................ 99
Country Snapshot: South Korea Demographic Data ...... ... 100
Section 1: Population .................. .......100
Table: Demographic Indicators, 2005-2030 ................100
Table: Rural/Urban Breakdown, 2005-2030 .............. ...101
Section 2: Education And Healthcare ................ ..101
Table: Education, 2002-2005 ....................101
Table: Vital Statistics, 2005-2030 ................ ........101
Section 3: Labour Market And Spending Power .............. ......102
Table: Employment Indicators, 2001-2006 ..................102
Table: Consumer Expenditure, 2000-2012 (US$) .............. ....102
Table: Average Annual Wages, 2000-2012 ..................103
BMI Methodology .................... 104
How We Generate Our Industry Forecasts ..................104
Defence Industry ......................104
City Terrorism Rating .................. ......105
Table: Methodology .................. ..107
Sources .................... ........108