South Korea Defence and Security Report Q1 2012

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 father’s 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 Korea’s 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 country’s 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 2012’s 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 Seoul’s 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 South’s attention will be fixed firmly on the conduct of the North during its year of symbolically charged celebrations, and on the North’s approach to negotiations, should they in fact resume. The North’s stance could in turn help determine the course of elections in the South.

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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 Korea’s Security Risk 51
City Terrorism Rating 52
Table: BMI’s 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
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Armed Forces 77
International Deployments 77
Table: South Korea’s 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 Korea’s Defence Sector 83
Industry Forecast Scenario 85
Armed Forces 85
Table: Armed Forces, 2000-2009 ('000 personnel, unless otherwise stated) 85
Table: South Korea’s Available Manpower For Military Services, 2011-2016 (aged 16-49, unless otherwise stated) 85
Defence Expenditure 86
Defence Expenditure 86
Table: South Korea’s Government Defence Expenditure, 2011-2016 86
Table: South Korea’s Defence Expenditure By Changing % Of GDP, 2010-2016 (US$mn) 87
Defence Trade 87
Key Risks To BMI’s Forecast Scenario 88
Macroeconomic Outlook 89
Company Profiles 94
Daewoo Shipbuilding & Marine Engineering (DSME) 94
Doosan Heavy Industries & Construction 96
Korea Aerospace Industries (KAI) 98
Samsung Thales 99
Country Snapshot: South Korea Demographic Data 100
Section 1: Population 100
Table: Demographic Indicators, 2005-2030 100
Table: Rural/Urban Breakdown, 2005-2030 101
Section 2: Education And Healthcare 101
Table: Education, 2002-2005 101
Table: Vital Statistics, 2005-2030 101
Section 3: Labour Market And Spending Power 102
Table: Employment Indicators, 2001-2006 102
Table: Consumer Expenditure, 2000-2012 (US$) 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
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