As Chinese real estate behemoth Evergrande reportedly prepares for a government-backed mega-restructure, here is an explainer on what Beijing’s bid to limit a contagion could mean for the wider economy:

– What happened to Evergrande? –

The Chinese government sparked a crisis in the property industry when it launched a drive last year to curb excessive debt among real estate firms as well as rampant consumer speculation.

Evergrande, a real estate giant with a presence in over 280 Chinese cities, was the most prominent developer to pay the price for Beijing’s clampdown.

More than $300 billion in debt, it teetered for months on the edge of default, returning each time from the brink thanks to a last-minute repayment.

But according to Bloomberg it has now missed a 30-day grace period on overdue coupon payments worth $82.5 million, while agency S&P Global Ratings has said a default now “looks inevitable”.

– What happens now? –

After Evergrande warned last week it may not be able to meet its financial obligations, the local government in Guangdong — where the firm is headquartered — summoned billionaire chairman Hui Ka Yan, and said they will send a “working group” to the company.

Analysts said this moment signalled the formal start of the giant’s debt restructuring — a process that will likely take years.

– What does it mean for investors? –

Signs that the state is taking a bigger role in Evergrande’s future have eased investor concern of a disorderly collapse.

“It’s pretty clear that the state is seriously involved in managing the situation,” Shehzad Qazi, managing director of data analytics firm China Beige Book, told AFP.

It will “ultimately be a ‘controlled demolition’,” Qazi added.

But bondholders are likely to face deep haircuts, and even if restructuring provide some answers, the broader impact of Beijing’s sweeping property crackdown remains to be seen.

– What about other Chinese developers? –

At least 10 property firms have defaulted on bonds since concerns started to grow over Evergrande in June.

Hong Kong-listed Sunshine 100 defaulted after missing a deadline to make $179 million in payments this week, and Kaisa failed in a debt swap to buy crucial time for raising cash.

Property firms made up 36 percent of the $10.2 billion of offshore bonds that Chinese borrowers defaulted on this year, Bloomberg said.

– How will China’s economy be impacted? –

The People’s Bank of China said last week that Evergrande’s problems came from its own “poor management and blind expansion” in a bid to reassure investors.

Regulators have said they would safeguard the rights of homebuyers, while the banking and insurance authority stressed the need to “focus on satisfying mortgage needs for first homes.”

With the local government sending a working group to the firm, the Evergrande crisis has drawn parallels with government intervention in other indebted companies, notably aviation conglomerate HNA Group.

HNA’s restructuring did not cause investor panic — although Evergrande’s higher profile means this time will likely prove a bigger challenge.

But whatever happens to Evergrande, Beijing’s broader clampdown has already had a major impact on the property sector and deepened worries over key firms’ financial health, bringing home sales and prices down.

– And what about the global economy? –

A slowdown in the Chinese real estate sector, which accounts for a significant proportion of the country’s economic output, could have ripple effects on global growth.

Evergrande’s woes have rocked stock markets — and the real estate sector makes up much of distressed dollar-denominated debt internationally.

But an Evergrande default has long been expected, and fears over a “Lehman moment” — a reference to the Wall Street titan whose collapse prompted panic worldwide during the 2008 global financial crisis — have already been dismissed.

bys/rox/ser