Big bubble bursts in Pyeongtaek

PYEONGTAEK, Gyeonggi - For investors, Pyeongtaek in Gyeonggi was an up-and-comer after it secured a number of deals to construct industrial complexes in preparation for the relocation of the U.S. military base in Yongsan, central Seoul. Samsung Electronics and LG Electronics planned ventures, and Pyeongtaek’s fiscal self-reliance ratio climbed to 55 percent from the 40 percent range in the mid 2000s.

As part of development, the Gyeonggi provincial government, Pyeongtaek city government and Sungkyunkwan University signed a memorandum of understanding in 2007 to build a special district called Brain City over 4.82 million square meters (1,191 acres) near the Doil neighborhood of the city.

The three parties agreed to set up a third campus for Sungkyunkwan and other knowledge-based industrial infrastructure. A Brain City Development company was created, nearly 1,500 residents were envisaged, and the plan called for a 2.4 trillion won ($2.15 billion) investment. The project was supposed to be completed by the end of this year.

Then came the global financial crisis of 2008. The plan has never really recovered. When the JoongAng Ilbo visited the Gajae neighborhood, which is included in the property project in Pyeongtaek, the area designated as the home of Brain City since 2007, it found posters hung along poles on the street calling for the Pyeongtaek city government and developers to compensate residents for their land, which was designated for the development plan.

Some 1,500 households had land designated part of the industrial development so they haven’t been able to sell it. They’re stuck in Brain City since the company that was supposed to come up with 1.4 trillion won to compensate them failed to do so.

The Brain City Development company is now demanding the city financially guarantee the project and pump in 380 billion won worth of investment, which would enable the company to borrow enough money from banks to keep the development going.

But that’s almost half of the city’s annual budget of 800 billion won, and the city government has turned down the demand for a guarantee.

“If the project falters after the city made a commitment to the project [by guaranteeing the investment], then the city would solely be responsible for project costs,” said Park Chun-su, director of the corporate support office at the city government. “We can’t risk such a huge portion of our budget.”

Worries are now growing that Brain City could meet the fate of the scrapped Yongsan property development project in Seoul, which was touted as the country’s single largest urban development plan worth 31 trillion won. (That plan is not related to the move of the U.S. base from Yongsan.)

Agitated local residents have filed a complaint against city officials including Mayor Kim Sun-ki on charges of breach of trust, claiming the city is now basically sabotaging a project it dreamt up with the provincial government.

Government officials say an inability to finance the project is what keeps it from going forward.

“We are now mulling a variety of measures to revive the stalled project,” said Lee Wan-gu, director of the regional policy team at the provincial government.

Some analysts accuse Pyeongtaek of indiscriminately trying to create industrial zones whether they make sense or not.

Under the capital regional adjustment plan, which tries to balance regional development in Gyeonggi, 4.71 million square meters of the port city were designated industrial zones on six occasions from 2006 to 2011 on top of 14.21 million square meters of land chosen for development in compensation of the U.S. military relocation scheme.

By Choi Mo-ran [jkkang2@joongang.co.kr]