The tremors in China's real estate market are shaking the country's and the world's economy, which has come to rely on China as a reliable engine of growth.
Large developers falter as they suffer huge losses, deal with mountains of debt and fail to pay lenders. A long-standing construction boom that has fueled China's growth has stalled, threatening the jobs and savings of millions of households. China's markets have slumped and its currency has weakened as authorities take action to boost growth.
Here's what you need to know:
What's wrong with real estate and China's economy?
For decades, China's economy has depended on a booming real estate sector fueled by population growth. The real estate market created jobs and served as a store of wealth for China's growing middle class. Local governments also depended on income from land sales.
But the country's population isn't growing as it used to, and years of tough Covid-19 restrictions have rocked Chinese consumers. The government has also cracked down on risky practices in the industry, a combination that has left property developers with huge debts and more new housing units than buyers.
House prices have fallen, hurting Chinese household savings and confidence as the government seeks to transition from an economy driven by state-led investment and exports to one driven by domestic consumer spending.
How bad is it?
According to an estimate by Gavekal Research, unpaid bills from private Chinese developers total $390 billion, posing a major threat to the economy.
Economists have downgraded their forecasts for China's economic growth, many of which are below the government's target of around 5 percent.
Both imports and exports have fallen in recent months, and foreign investment in the country fell more than 80 percent year-on-year in the second quarter. Consumer prices in China fell in July for the first time in two years, a sign that Chinese households were spending less.
The Hang Seng Index of Hong Kong-listed stocks went bearish on Friday, falling more than 20 percent from its January peak.
Which companies are at the center of the crisis?
Country Garden, China's largest real estate developer, said this month it expects a loss of up to $7.6 billion for the first six months of this year. The company's share price has fallen as investors fear the company could default on billions of dollars in loans.
China Evergrande, another major real estate developer, recently filed for bankruptcy in the US as the company restructures its debt. The company defaulted on $300 billion in debt in 2021, one of the first big signs that China's real estate industry was in trouble.
The sector's problems are also spreading to China's financial trust companies, which offer investments with higher yields than traditional bank deposits and often invest in real estate projects.
The Zhongrong International Trust, which manages around $85 billion in assets, recently missed payments to investors. Videos circulating on social media showed a crowd of investors protesting outside the company's offices in Beijing, demanding a payback from the company.
What is the Chinese government doing about it?
Chinese regulators began cracking down on reckless borrowing in 2020, forcing companies to reduce their debt before borrowing further.
That caused problems for heavily indebted developers like Evergrande and Country Garden. According to Standard & Poor's, more than 50 property developers in China have defaulted on payments in the past three years.
The government recently unveiled programs to boost spending and investment, but the details are unclear.
The Chinese central bank on Monday cut its one-year lending rate, which is used for most corporate loans, but left the five-year lending rate, which is used to price mortgages, unchanged. Economists had expected more aggressive moves.
What impact could China's troubles have on the global economy?
According to BCA Research, China has been the source of more than 40 percent of global economic growth over the past decade, compared to 22 percent in the United States and 9 percent in the euro zone.
A decline in consumer spending in China is hurting companies that do business there, such as American tech companies and European luxury goods conglomerates. A weaker Chinese economy also means less demand for oil, minerals and other industrial building blocks. China is one of the United States' largest trading partners, buying billions of dollars worth of American crops and machinery every year.
However, the reaction of global investors has been relatively muted so far. The S&P 500 recently fell for three straight weeks on signs of a crisis in the Chinese economy, but remains higher for the year on the back of big tech companies. Investors in the United States and Europe have also been preoccupied with their national central banks' next rate hikes as their countries face stubborn inflation.
Reporting was contributed by Keith Bradsher, Peter S Goodman, Alexandra Stevenson And Daisuke Wakabayashi.