Sep 08, 2021 08:53 PM

In Depth: Huarong’s $3.4 Billion Debacle on a South Korean Tourist Trap

(Jeju, South Korea) — When it was sold for a song in 2014, the plot of land was little more than an undeveloped stretch on a South Korean tourist trap for Chinese vacationers called Jeju Island.

About the size of New York City’s Central Park, the plot had been left vacant for years because few could afford the enormous amount of money needed to develop it, according to Kim Yong-cheol, a South Korean certified public accountant with knowledge of the matter.

The buyer at the time was a newly established South Korean company that paid around 630 million yuan ($97.5 million) for the property, a bargain-basement price that was probably due to sky-high investment requirement, Kim told Caixin, citing its financial statements.

Over the next three years, the parcel would become the target of a nearly $60 billion investment fantasy, be bought on the sly by a Chinese gambling tycoon, and entice a group of insiders at China Huarong Asset Management Co. Ltd. to collude with the property’s owner on a deal that promised to net them almost 10 billion yuan in ill-gotten gains — despite remaining 3.6 square kilometers (1.4 square miles) of island wilderness.


The deserted land JCC bought on Jeju Island. Photo: Yue Yue/Caixin

This is the story of how the now-notorious Huarong ended up paying $3.4 billion for a piece of land that is currently estimated to be worth about one-third of that price, enriching the property’s erstwhile owner and conspiring company executives along the way.

The investment exemplifies the bad business deals made by Huarong under former Chairman Lai Xiaomin, whose record-setting corruption racked up so much debt for the state-owned bad-asset manager that China’s central government had to promote a bailout in recent months.

In August, Huarong finally released its 2020 results, reporting a huge net loss of 103 billion yuan to reflect a slump in the value of investments like the Jeju Island debacle, most of which were made during Lai’s tenure.

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The developer family

The company that bought the Jeju Island property in 2014 was Jeju China Castle (JCC). Its chairman at the time was Park Yeongjo (朴英祚), a well-known property developer. The 56-year-old was born in Northeast China’s Jilin province, which borders North Korea, and later became a South Korean citizen, according to people familiar with the matter.


Park Yeongjo.

On Dec. 19, 2014, shortly after buying the land, JCC filed applications for 57 business licenses, including those that would allow it to operate casinos, cinemas and stadiums, according to business filings seen by Caixin.

That same year, JCC announced that it would invest 60 trillion won ($57 billion) to build a tourist destination on the land that featured a golf course, thousands of apartments and hotel rooms, as well as other holiday facilities. If all went to plan, the project would have been the largest ever investment on Jeju Island.


Rendering of the tourism development area that JCC planned.

Although the proposal caused a sensation, some doubted whether JCC had the funding to make it happen, including the accountant Kim, a local who was looking into the company as a professional outsider.

Based on his investigation, Kim said (link in Korean) at a meeting in November 2016 that JCC was a shell company wholly owned by British Virgin Islands-incorporated Haoxing Investment (Hong Kong) Ltd. Park responded that Haoxing was wholly owned by his son, Piao Xingfeng (朴星峰) — their family name is “Piao” in Chinese.

In April 2017, Kim’s further investigation revealed that Haoxing had six shareholders, all established in tax havens — a magnet for companies looking to avoid taxes, launder money, or hide their true owners.

According to Kim, three shareholders registered in the British Cayman Islands held a combined 51% stake in Haoxing, while the three others set up in the Virgin Islands collectively owned the remainder. “It is very likely that any capital coming in from tax havens through Hong Kong is ‘black money,’” he told Caixin in October 2018, referring to money made illegally.


Kim Yong-cheol. Photo: Yue Yue/Caixin

The gambling tycoon

Not long after JCC announced its 60 trillion won investment proposal, on July 24, 2015, Piao sold his entire stake in Haoxing to gambling tycoon Yang Zhihui and agreed to hold the shares on the billionaire’s behalf, sources with knowledge of the matter told Caixin. The arrangement allowed Yang to conceal his ownership of the land.

This is an old game on the island, according an entrepreneur experienced in the real estate business in Jeju. “Locals in Jeju dislike ‘bad’ developers, because their whole purpose in buying land is to make big bucks by reselling it after obtaining more qualifications and permits,” he told Caixin. “They are not in it at all to develop Jeju’s economy, but for speculation and personal gain.”

Yang, 50, is one of the most important Chinese businessmen in Jeju. A Hong Kong-listed company he controls, Landing International Development Ltd., developed and operates the Jeju Shinhwa World, an iconic resort that is home to the largest casino on the island open only to foreigners.


Yang Zhihui at the Jeju Shinhwa World’s Landing Casino. Photo: Landing International’s website

Caixin was unable to reach Yang or the Park family for comment by the time of publication.

It remains unclear how much and how Yang paid in the deal. Some suspected that he had transferred a portion of the money to Piao through the Hong Kong stock market. One possible clue was that from July 27, 2015, the first trading day after the deal, to September 2015, Piao cashed out millions of dollars by selling shares of Hong Kong-listed Ngai Shun Holdings Ltd., while Yang sank millions of dollars into the same stock, public filings show.

It also remains unclear why Yang bought Haoxing and why he decided to conceal that he was the owner.

In the end, he did not hold on to the investment very long. In December 2016 — one month after accountant Kim first released his investigation — Huarong acquired a 51% stake in Haoxing, whose only valuable asset was the Jeju Island land, by buying out its three shareholders registered in the Virgin Islands, according to sources familiar with the matter.


The Jeju Shinhwa World. Photo: Yue Yue/Caixin

The fallout in China

The Jeju provincial government had doubts about whether Park had the financial wherewithal to develop such a huge project on his own, a JCC manager said at a meeting held by the local legislature on May 17, 2017, according to a video seen by Caixin.

At the time, the land still appeared to be owned by Park’s son. The Jeju government was still unaware that Yang had already purchased it and then sold a majority stake on to Huarong.

Under public pressure, the Jeju government in May 2017 set up a task force to investigate the source of JCC’s funding to develop the land.

The following month, Huarong bought the remaining 49% stake in Haoxing, the sources familiar with the matter said. In total, Huarong spent $3.4 billion to acquire the Jeju Island plot, more than 30 times the price that JCC paid in 2014, they said.


However, according to estimates from multiple appraisal agencies, the land is worth no more than 7 billion yuan, or $1.1 billion, the sources said. In its 2020 annual report, Huarong expected to take a 60% loss on the investment.

Huarong’s $3.4 billion went to Yang, the de facto owner of the land, but he was not the only one who stood to benefit.

Lai, then Huarong’s chairman, and three subordinates had planned to take nearly 10 billion yuan in bribes from Yang in the wake of the land deal, but only a portion of the bribes was actually paid because Lai soon fell under a Chinese government probe, sources close to Chinese regulators told Caixin.

In April 2018, Lai was put under investigation for corruption. About three years later, he was convicted of accepting 1.79 billion yuan in bribes, making his corruption case the largest ever in China’s financial sector going back to the founding of the People’s Republic of China in 1949. He was executed in January 2021.

Lai stood to rake in billions of yuan in bribes from the Jeju Island deal, but apparently did not make it in the end, the sources close to the regulators said. Most of the money has been recovered by Chinese authorities, they said.

Lai’s three subordinates — Wang Pinghua, a former chairman of Huarong Real Estate Co. Ltd., who became JCC chairman in December 2016; Bai Tianhui, a former general manager of China Huarong International Holdings Ltd.; and Guo Jintong, a former deputy general manager of Huarong International — respectively took bribes worth nearly 1 billion yuan, around 600 million to 700 million yuan, and about 300 million yuan, the sources said.

In June 2018, Wang, Bai and Guo were investigated for graft, Caixin previously reported. Their cases are still ongoing.

In August 2018, Yang was detained in Cambodia and investigated by Chinese authorities over suspicious business ties with Huarong. He was later freed. Yang returned Huarong about $100 million involving the Jeju Island deal, the sources said.

Looking back at Lai’s tenure as chairman from 2012 to 2018, Huarong deviated from its original mission of buying and resolving bad debts of state-owned banks and embarked on an aggressive spending spree at home and abroad, leaving behind a massive pile of bad debts of its own.

The company is now undergoing its biggest restructuring since its inception in 1999, in the hopes of tackling its problems and getting its financial risks under control. The efforts are being led by state-owned giant Citic Group Corp., China’s second-largest financial holding company that is wholly owned by the State Council, the country’s cabinet.

Rewritten by Lin Jinbing.

Han Wei and Hao Shuai contributed to this story.

Contact reporter Lin Jinbing ( and editor Michael Bellart (

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