For decades, rising property prices helped enrich China. Now one of the country's biggest developers is facing bankruptcy. Policymakers fear it could send China's financial system into a tailspin.

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A property developer in China could be going bankrupt. And that may not sound like a big deal, but NPR's Emily Feng reports the firm is at the center of so much debt, its collapse could set off a chain reaction of defaults.

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EMILY FENG, BYLINE: I'm standing in a half-finished villa. The marble floors are covered in dust. And while the chandeliers have been put in already, the entire mansion is still missing its doors. The house is part of the Taicang Cultural City project, and it was being built by Evergrande, one of China's biggest real estate developers. But now construction has halted.

MAO KAI: (Speaking non-English language).

FENG: Mao Kai, a real estate agent, tells me all the units are sold, though it's not clear whether they will ever be finished. Buying property is everything in China. It's used as a dowry for marriage and is a ticket to accessing the best public schools. And it's generated huge returns for the middle class. More than 70% of urban wealth is in property. That's why Shanghaier (ph) Penelope Wu and her husband splurged for a $200,000 one-bedroom Evergrande apartment here. There was so much competition last year, she offered to pay the total cost up front in cash before Evergrande even broke ground.

PENELOPE WU: (Through interpreter) I didn't know then that Evergrande was so desperate for money. Oh, well. Buying property's like betting on stocks. You win some, and you lose some.

FENG: Now she's waiting for Evergrande to finish building her apartment, along with as many as 1.4 million other units the developer pre-sold. But the developer has no more money to continue building. Wu trusts the government will step in to save Evergrande or at least make sure it finishes building the homes it's already sold.

WU: (Through interpreter) Evergrande is too big to fail. Even if it did go bankrupt, the government would step in to save it.

FENG: Angry and worried investors are already picketing Evergrande's headquarters. They bought investment products from Evergrande that now look worthless as its stock lost nearly 90% in value this year.

NIGEL STEVENSON: Well, it does now look as though the day of reckoning is sort of fast approaching.

FENG: Nigel Stevenson is a Hong Kong-based analyst at GMT Research, and he's tracked Evergrande for years. It became one of China's biggest developers by playing a risky game, selling bonds and borrowing money at double-digit interest rates to finance new projects, which it then sold just in time to pay back debts and take out new loans.

STEVENSON: So it's always been able to sort of postpone the sort of day of pain in a sense. And in the meantime, the sort of assets and the balance sheet had just got bigger and bigger. And in a sense, the problem has got bigger and bigger.

FENG: The problem started early this year. COVID slowed property purchases. New policies restricted how many homes people could buy, and much stricter caps on how much debt property developers could take on were enforced. Here's Bo Zhuang, chief China economist at investment firm Loomis Sayles.

BO ZHUANG: It's part of the long-term China's like de-leverage, de-risking. Beginning of this year, it was, like, very stringently implemented. So that's the key factor.

FENG: This is what the Chinese state wants. It's tired of risky developers like Evergrande taking out loans it cannot pay back and selling apartments no one needs just to raise housing prices. So China is forcing Evergrande and others to pay down debts. Next, it wants local governments to reduce their financial dependence on selling land for revenue. The question is, could pushing Evergrande to shape up actually destabilize the whole economy?

ZHUANG: In Chinese say that killing chicken to scare the monkeys - but the thing is that they are maybe trying too hard to kill the chickens, but all the monkeys are scared away.

FENG: There's a chance Evergrande will miss bond interest payments this month, and buyers are so spooked over Evergrande, other developers are now seen falling property sales and plunging stock prices, potentially setting off more defaults.

ZHUANG: Household confidence in buying new property - (unintelligible) that presale property - is deteriorating really fast. If my mom knows Evergrande story, it means that everybody knows the Evergrande story.

FENG: Evergrande doesn't just owe loans to banks. It also has liabilities, as in unpaid bills totaling about $370 billion it owes to contractors and suppliers who could also go belly up if Evergrande defaults. One of these contractors is Nantong Sanjian, which was supposed to finish Evergrande's Taicang project. Here's one of its managers Sheng Weixin.

SHENG WEIXIN: (Though interpreter) The last two days have been filled with endless fights with the police and with desperate homebuyers. Evergrande has no money to pay us back, so we're also fighting with renovators and other contractors.

FENG: Sheng is ashen-faced with worry. He's already sent all his workers home because he can't afford to pay them.

SHENG: (Though interpreter) We still owe our workers three months' salary. Our own business is likely to get pulled into bankruptcy as well.

FENG: Sheng points out the concrete and steel skeletons of nearly a dozen unfinished Evergrande projects around us.

SHENG: (Non-English language spoken).

FENG: He waves to a cluster of towers to our east, which another developer agreed to bail out in July, only to face debt issues themselves. Government regulators are now seeing if any other developers can buy out Evergrande before its financial woes spread across China's property sector. But they're looking shaky, too, and Beijing is running out of time to contain the economic fallout.

Emily Feng, NPR News, Taicang, China. Transcript provided by NPR, Copyright NPR.

Tags: real estate  China  Bubble