Jeju Dream Tower: Chinese Construction Company Delays Payment of 60 Billion Won Construction Costs

Resort Operations Started Late Last Year
Partner Company Unpaid Construction Fees for 5 Months
Conflict Over Additional Construction Costs
Partner Company "Promised Payment Upon Completion but Broke the Promise"

[Asia Economy Reporter Kim Hyemin] The complex resort 'Jeju Dream Tower,' built with the highest height and scale in the Jeju Island area, is embroiled in controversy over unpaid construction fees to partner companies. In particular, although this resort is a domestic project, the construction was undertaken by a Chinese construction company, causing partner companies to struggle with recovering their payments.

According to industry sources on the 2nd, despite Jeju Dream Tower completing construction and commencing operations on December 18 last year, the construction company, China State Construction Engineering Corporation (hereinafter referred to as China Construction), a Chinese state-owned enterprise, has not paid construction fees to a significant number of partner companies. Jeju Dream Tower is a large-scale complex resort jointly developed by Lotte Tour Development and the Chinese real estate investment company Greenland Group. This project is a mega project with construction costs reaching 1.6 trillion KRW, and partner companies signed contracts with China Construction to carry out interior, electrical, and other indoor works over two years.

Partner companies claim that payments began to be delayed around October last year. A representative of one partner company said, "China Construction said they would pay the remaining construction fees, ranging from 15-20% to as much as 30%, after the completion of the construction," adding, "However, they later changed their stance, saying they could not pay because they had not received funds from the developer, Greenland Group."

Partner companies say that conflicts between the developer and the construction company over the increased payment amounts during the construction process have caused innocent partner companies to suffer. A representative of a partner company said, "Greenland Group and Lotte Tour Development, the developers, say they have paid the contracted amount and have no more money to give, while China Construction says they need to receive the increased construction fees before they can pay the partner companies," adding, "This blame-shifting has wasted nearly six months."

An emergency council formed by 10 partner companies that have not received payments has identified unpaid amounts totaling 60 billion KRW. Among these, the council claims that the outstanding receivables for which tax invoices have been issued but not paid amount to 36.055 billion KRW.

There are criticisms that, since the primary contractor is a Chinese construction company, it is exempt from the obligation of responsible completion. In the case of domestic construction companies, even if the developer goes bankrupt or faces financial difficulties, they are obligated to complete the project responsibly and pay partner companies, but foreign construction companies are not subject to this rule. Partner companies have currently filed a complaint with the Fair Trade Commission, but it is expected to take another six months to reach a conclusion.

A representative of the emergency council said, "We never imagined such a large company would behave like this. They secured funding by mobilizing domestic and foreign financial institutions and even the National Pension Service's pension funds, yet they are not paying construction fees to partner companies," adding, "Many of the partner companies are small and medium-sized enterprises, so it is questionable how much longer they can endure."

The developer, Lotte Tour Development, explained, "We understand this is a payment settlement issue between China Construction and the partner companies. Since there is a significant price difference, we requested an objective amount assessment from a third party and are currently awaiting the results." Regarding the unpaid confirmed construction fees, they added, "That is a matter between China Construction and the partner companies, and we do not know the details well."