REUTERS/Petar Kujundzic
Xingrun owes banks 2.4 billion yuan, and owes another 1.1 billion yuan (about $178 million) to other creditors.
The People's Bank of China, and one of China's big four banks, China Construction Bank, were reportedly holding "emergency talks" about bailing out a property developer, Jamil Anderlini reported in the Financial Times. China Construction Bank was the biggest lender to Xingrun.
But Bloomberg is now reporting that the PBoC was not involved in any emergency talks concerning Xingrun.
The real estate developer had reportedly tried to offer paying creditors annual interest rates of as much as 18-36% for loans after banks began to turn it down. The chairman and son have both been arrested for illegal fund raising.
But if the property developer were to default, this would raise concerns not just about shadow banking, but about the health of China's property sector as well.
China's overheated property sector has been under the scanner for a long time. Xingrun took a beating as prices for local land and apartments in Fenghua have fallen.
Officials in Fenghua, a city in Zhejiang province where the developer is based, have been trying to calm fears about another default.
Stocks and bonds issued by Chinese property developers fell on the news.
Markets are nervous after the default of a corporate bond (Chaori Solar Energy Science and Technology Co's 11 Chaori bond). Even though the default was expected, copper prices plunged following the news, as concerns began to mount about copper-backed loans.
Speaking after the National People's Congress, premier Li Keqiang said when it comes to defaults of financial products, "avoiding a few individual cases would be difficult, but efforts must be taken to make sure regional and systemic financial risks do not occur."
Societe Generale's Wei Yao has previously warned that "government efforts to engineer a deleveraging could lead to a hard landing in China, if the policy response is misjudged."
As China pushes through reforms and tries to rebalance its economy away from investment led growth, it needs to tread carefully.