South Korea’s Health Ministry rejected on Monday a Chinese firm’s plan to build the nation’s first foreign-based, for-profit hospital on Jejudo Island, citing growing doubts over its financial status and emergency medical system.

China Stem Cell Health Group, or CSC, has been seeking the Korean government’s approval on the construction of the Shaner Hospital & Health Care Center on Jejudo ― an investment valued at 50 billion won ($48.4 million).

But the Health Ministry decided to turn down the plan after the CEO of its parent company, Tianjin Huaye Group, was arrested in connection with fraudulent loans and its largest shareholder was also shut down.

“We have concluded that the firm is not capable as an investor due to its financial instability as well as the arrest of its chairman,” the ministry said in a statement. “The firm also did not have an adequate plan for the hospital’s emergency facilities, which is one of the mandatory requirements.”

If it had received approval, the Shaner Hospital & Health Care Center would have been the first for-profit hospital in South Korea, marking a major development in a nation where disputes are raging over the government’s plan to ease regulations on such for-profit hospitals.

Back in February, CSC submitted its hospital construction plan to the Health Ministry, asking for approval to build a hospital that primarily offered stem cell treatments.

The firm later revised its plan upon learning that stem cell therapy is currently illegal in Korea, deciding to specialize in plastic surgery and dermatology treatments instead, specifically targeting affluent Chinese tourists.

But the Health Ministry raised doubts about whether the envisioned Chinese hospital would engage in stem cell therapy or not, citing the absence of a monitoring system on Jejudo Island.

Last month, Rep. Kim Yong-ik of the main opposition New Politics Alliance for Democracy shared his findings on the Chinese company’s uncertain financial prospects.

The chairman of the Chinese group reportedly borrowed some 700 million won ($691,000) from banks by forging loan applications. On top of the CEO’s arrest last year, the hospital’s largest shareholder, Xidanmu Shaner Bio, has also been shut down.

The property, initially planned to be built in Seogwipo on Korea’s southern resort Island of Jejudo, would have had 48 patient rooms.

In spite of CSC’s failed bid as well as public criticism, the government said it will continue easing regulations on foreign firms to attract investment in Korea’s health care industry.

By Claire Lee (dyc@heraldcorp.com)