Facing mounting real estate problems, the Chinese government will likely pursue a modest intervention that would cause financial losses for investors and further slow economic activity. But large-scale social unrest or the imminent collapse of a systemically important company could trigger a heavy intervention that would stabilize the economy in the short term but plant the seeds for a far worse financial crisis in the future. Country Garden, China's largest real estate developer, missed debt payments and suspended onshore bonds in early August, fueling expectations of a coming debt restructuring. Chinese trust firm Zhongrong International Trust Co. -- which is heavily exposed to real estate investments -- also missed payments for dozens of investment products in July, prompting protests outside its office in Beijing. At best, these missed payments suggest the continued stagnation of China's real estate sector and the financiers thereof. And at worst, they presage a financial crisis...
