[Exclusive] Daejang-dong Development Contractor Involved from Seongnam City Development Corporation Establishment to Project Site Selection

Korea Economic Research Institute Suggests Establishing Corporation for 'Public-Private Joint Project'... Proposes 'Wirye New Town and Daejang-dong' as Initial Project Sites

Aerial view of Daejang-dong, Seongnam-si, Gyeonggi Province /

[Asia Economy Reporters Hyunju Lee and Kyunghwan Bae] It has been revealed that the Korea Economic Research Institute, which is suspected of conducting a flawed feasibility study on the Daejang-dong development project, was also involved in the establishment process of the Seongnam Urban Development Corporation. The institute selected Daejang-dong and Wirye New Town as the representative project sites to be promoted in the early stages of the corporation’s launch. It has been confirmed that Lee Jae-myung, then mayor of Seongnam and now governor of Gyeonggi Province, received all related reports directly.

According to a comprehensive investigation by Asia Economy on the 14th, the ‘Feasibility Study for the Establishment of Seongnam Urban Development Corporation (tentative name)’ commissioned by Seongnam City in early September 2011 was undertaken by the Korea Economic Research Institute. This institute was responsible for the feasibility study during the Daejang-dong development and sparked controversy by completing the profitability review of a project costing over 1 trillion won in just three weeks.

Upon reviewing the feasibility study materials for the establishment of Seongnam Urban Development Corporation at that time, the institute concluded that ‘establishing the corporation is necessary to utilize the profits from development projects for regional development.’ The reason given was the need for an institution to consistently promote urban development, along with an analysis that the business delays by Korea Land and Housing Corporation (LH) had weakened private development functions.

The document also proposed that the ‘public-private joint project,’ which became the root cause of the current Daejang-dong incident, should be promptly promoted through the establishment of the corporation. It contained content stating the need to resolve ‘vague prejudices that private companies would focus excessively on profit-seeking and the various unfavorable conditions for the government to directly carry out urban development projects.’

In particular, considering the corporation’s initial lack of capital and business capabilities, the institute directly pointed to Wirye New Town and Daejang-dong as project sites capable of generating profits within a short period. This was due to concerns about the sustainability and prolongation of long-term projects.

Seongnam City also entrusted the ‘detailed diagnosis,’ which must be conducted one year after the corporation’s establishment under the Local Public Enterprises Act, to the Korea Economic Research Institute. During this process, the institute even proposed establishing a Development Project Division to oversee the Daejang-dong development.

Subsequently, the institute was responsible for the ‘Feasibility Study on Investment in the Combined Urban Development Project of Daejang-dong and the 1st Industrial Complex,’ which laid the groundwork for the Daejang-dong development. While feasibility studies for large-scale development projects typically take more than six months, the Daejang-dong project’s feasibility evaluation was completed in just three weeks.

The study was criticized as hasty because it lacked specific analysis of the scale of profit recovery from the development project. It did not analyze in detail the profit recovery through the special purpose company (SPC) ‘Seongnam-e Deul,’ invested in by the Seongnam Urban Development Corporation, nor did it review joint investors. The development profit was estimated at 128 billion won, and the project was concluded to be feasible based on benefit-cost ratio and internal rate of return.

It was also confirmed that then Mayor Lee personally received and approved all related study results. This means that Lee reviewed both the process of establishing the corporation with a capital of 5 billion won and the feasibility evaluation conducted prior to the 1 trillion won-scale development.

Some suspect that such results were possible because the research project executor had a pro-government inclination. Sung Mo, head of the Korea Economic Research Institute who conducted the study, was a co-representative of the ‘Seongnam Policy Forum’ organized in December 2010. Another representative of the forum at that time was Kim Byung-wook, a member of the Democratic Party and head of the ‘Success Forum,’ a support group for Lee.

Meanwhile, it has been confirmed that the institute also participated in the ‘Feasibility Study for the Establishment of Pocheon Urban Corporation,’ which is expected to expand the controversy. Currently, Pocheon Urban Corporation is promoting the ‘Naeri Urban Development Project’ by applying the ‘Daejang-dong model’ exactly, where after selecting a private business operator and establishing an SPC, the corporation holds 51% of the shares and the private operator holds 49%.

This content was produced with the assistance of AI translation services.