Chinese builders entering Korea

By Lee Hyo-sik

An artist’s impression of the 38-story Dream Tower Casino Integrated Resort to be built on Jeju Island by 2019. China State Construction Engineering Corp., China’s largest builder, won the 700 billion won ($610 million) order, signaling the entry of Chinese builders into Korea.

Chinese builders are looking to establish a presence in Korea, particularly on the nation’s southern resort island of Jeju where many Chinese investors and companies plan to build resorts and other leisure facilities.

On Tuesday, China State Construction Engineering Corp. (CSCEC) won a 700 billion won ($610 million) contract to build an integrated resort on Jeju, the first major construction deal won by a Chinese builder.

The news has alarmed Korean construction firms, which have been competing fiercely with their Chinese rivals in the Middle East and elsewhere. Domestic builders are concerned that they could lose a significant portion of the local construction market to Chinese firms which are armed with abundant liquidity and improved engineering and procurement capabilities.

Lotte Tour and China’s Greenland Group signed the contract with CSCEC in which the latter builds the 38-story Dream Tower Casino Integrated Resort on a 303,000 square-meter site. Lotte Tour has a 59 percent stake in the project and Greenland Group, China’s largest real estate developer, a 41 percent.

In March 2014, Lotte and Greenland had initially selected a consortium of Hanwha E&C and POSCO E&C as a preferred bidder. But the two builders backed out of the deal.

CSCEC, China’s largest builder, is expected to begin work in May and complete the project by March 2019. When completed, the Dream Tower, which will have 1,600 hotel rooms, a foreigner-only casino and a shopping mall, will be the tallest building on the island.

“CSCEC’s winning of the 700 billion won contract may not be an isolated incident. CSCEC and other Chinese builders could win more construction projects,” said Kim Woon-joong, the head of business development division at the International Contractors Association of Korea. “Chinese companies will rush to come to Korea if they can make money here.”

Kim said that the latest news has unnerved domestic builders who know how tough it is to compete with Chinese companies that receive full-scale support from the Chinese government.

“Korean builders have been facing increasingly stiffer competition from Chinese rivals in the Middle East, Africa and elsewhere. They simply don’t want to engage in competition in their home market,” he said.

According to the Middle East Economic Digest, a business information provider on the Middle East and North Africa, Chinese builders won contracts worth $13.3 billion in the Middle East from January through February, while Korean firms secured deals valued at only $88 million.

“Korean firms are engaged in fierce competition with Chinese rivals in the global construction market. If they stick to their current business model, they won’t be able to survive because Chinese firms have improved their engineering and procurement capabilities significantly over the years,” said Kim.

“Chinese builders also easily obtain financing from state-run banks, while Korean firms struggle to find banks willing to extend credits to them. Korean builders should try to avoid competition with Chinese rivals. They need to invest more to enhance their project management technique and develop high value-added businesses,” he said.