A bubbling debt crisis at one of China’s largest real estate developers is adding to the woes for investors who are becoming more worried about the risks emanating from the world’s second-largest economy.

The developer in question, Evergrande, announced on Tuesday that it faces the risk of default on up to $300 billion in liabilities if it can not raise enough money to meet interest payments. CNN reports that Evergrande has ceased work on some properties, but that promises damage to the Chinese real estate sector while a potential default would rip through the banking system.

On Tuesday, Evergrande made its grim announcement, but its executives have acted to reassure skittish investors that they are taking measures to stave off the worst outcome. The developer later said on Wednesday it was exploring the optional sale of electric vehicle and property service units it owns at discounted prices to generate new cash flows. Bloomberg Intelligence analysts said that a fire sale of assets could ease Evergrande's liquidity problems, but it will not on its own be enough to lift either earnings or margin outlooks.

Its executives meanwhile took symbolic measures to restore some faith among its investors. Evergrande CEO Hui Ka-yan shared a post on WeChat where he was seen alongside eight of his executives signing a guarantee to deliver on projects to customers. The company captioned the post, saying that it is determined "to ensure the quality of our construction" and make sure "quality projects in quantity' will be delivered by "any means possible."

Evergrande’s worrisome debts arrive in tandem with a Chinese regulatory push that has targeted some of its most valued companies. This has been aimed at what China’s President Xi Jinping billed as an agenda of reducing the power of concentrated wealth that is contributing to growing inequality in the most populous nation on earth. Up to half a trillion dollars in capitalization were eliminated at one point by the new regulations, particularly after they struck China’s vaunted technology companies like Tencent and ride-hailing firm Didi.

On top of new regulations, China’s economy has steadily slowed because of the COVID-19 pandemic. Factory and shipping yard shutdowns have contributed to global supply shortages as well as increased sluggishness in its manufacturing sector. On Wednesday, the Caixin manufacturing index fell from 50.3 to 49.2, the first contraction since April 2020.

It remains an open question as to whether or not China’s central government will step in to rescue Evergrande from disaster. An analyst with Capital Economics quoted by CNN wrote that Beijing may be loathe to take this action because it would prefer to see what it considers reckless risk-taking or rampant speculation from the private sector be discouraged. At the same time, Evergrande’s sheer size, the analyst predicts regulators would allow an orderly restructuring of the developer if it does indeed default.

A fund manager speaking to South China Morning Post took a different opinion. Dai Ming of Huichen Asset Management in Shanghai explained that the Chinese government prefers to see that orders already placed by Evergrande customers be fulfilled lest it risk a disruption for a regime that prizes social harmony.

“Failure to deliver would cause public outcry and affect social stability,” said Dai. “Evergrande now has to prioritise its delivery.”

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