How would Evergrande’s failure affect China’s economy?

A campaign by the central bank to tame property debt and reduce the banking sector’s exposure to troubled developers should mean that an Evergrande failure would have less of an impact on China’s financial system.

The reality may be more complicated.

Panic from investors and home buyers could spill over into the property market and hit prices, affecting household wealth and confidence. It could also shake global financial markets and make it harder for other Chinese companies to continue to finance their businesses with foreign investment.

Writing in The Financial Times in late August, the billionaire investor George Soros warned that an Evergrande default could cause China’s economy to crash.

Chen Zhiwu, a professor of finance at the University of Hong Kong, said a failure could result in a credit crunch for the entire economy as financial institutions become more risk averse. An Evergrande failure was “not good news to the financial system or the overall economy,” he said.

But not everyone is as pessimistic. Bruce Pang, an economist at China Renaissance Securities, said a default could lay the groundwork for a healthier economy in the future. “If Evergrande were to fail with the fading belief of ‘too big to fail,’ it will prove Beijing’s more tolerant for defaults despite pains and disruption in the short term,” Mr. Pang said.