The crisis engulfing China's second largest property developer Evergrande has the potential to generate wider ripple effects that could impact several sectors of China's economy and eventually its economic growth - with consequences for the global economy. Once the poster child of China's epic property boom, Evergrande has become the world's most indebted property developer, with debts exceeding US$300 billion (S$405 billion). As long as property prices were rising and bank finance was easily accessible, it was able to borrow at will and expand rapidly, launching about 800 projects across the country and going on an acquisition binge. But after the government's clampdown on the real estate sector to limit banks' exposures to the property market, Evergrande was unable to raise funds to complete more than half of its projects and forced to discount its unsold inventories. It now has serious problems meeting its liabilities to banks, bondholders, suppliers and individuals to whom it pre-sold unfinished properties and wealth management products to raise cash. Its stock and bond prices have crashed by more than 75 per cent this year. Despite a vaguely worded statement on Wednesday about planned repayment on some interest, markets remain cautious.

One of the biggest concerns stemming from Evergrande's crisis is the potential for contagion. With property prices falling and financing tight, hundreds of China's leveraged property developers have become vulnerable. If, like Evergrande, they too were to dump their inventories on the market, property price declines would accelerate. This would have dire implications for banks, whose exposures to the real estate sector exceed 40 per cent of their assets. With property accounting for the bulk of household wealth, it would also impact millions of home owners.