When China’s housing growth appeared like a one-way guess, Gary Meng’s mother and father purchased an condo from China Evergrande, the nation’s greatest developer. Quickly the corporate referred to as with one other pitch: to handle their wealth.

It was a great take care of little danger, the household thought. Evergrande had international recognition and was a politically necessary firm on the coronary heart of China’s rising financial system. They invested all their financial savings.

Then the unthinkable occurred. In 2021, Evergrande defaulted, representing the beginning of an actual property meltdown that has shaken China’s financial system, felled a few of its greatest firms and left dwelling patrons ready on greater than 1,000,000 flats. Final week, one other embattled actual property firm, Nation Backyard, stated it had run out of money, signaling that the worst could also be but to return. The businesses have a mixed $500 billion in debt and face important hurdles within the coming weeks.

Beijing’s capability to sluggish the collapse is now unsure as shoppers proceed to indicate an absence of curiosity in shopping for actual property, even throughout a latest Golden Week vacation, normally a bumper interval for gross sales.

The housing disaster has offered an acute problem for China’s political management: It’s making an attempt to wean the nation off its decades-long dependence on actual property to drive financial progress, however doing so is deepening a disaster of confidence. Monetary markets are questioning the way forward for China’s financial miracle, and households are abandoning their religion within the Chinese language Communist Social gathering’s promise of a greater financial future.

“Previously, I believed within the authorities and the get together and the nation,” stated Mr. Meng, whose household invested $300,000 in Evergrande’s wealth administration arm and continues to be owed $194,000. Warned by the police to not file a grievance with greater ranges of the federal government, Mr. Meng stated that belief had been examined. “Now I can solely say that I’m fairly bitterly disenchanted,” he stated.

Economists, buyers and central banks all over the world are warning of the dangers to China’s monetary stability, calling on Beijing to behave to stabilize the housing disaster. The Worldwide Financial Fund’s chief economist, Pierre-Olivier Gourinchas, stated final week that China’s actual property disaster was undermining confidence and inflicting monetary difficulties.

“The issue is severe,” he stated at a summit of policymakers in Marrakesh, Morocco. Each the World Financial institution and the I.M.F. have lower their progress outlook for China’s financial system.

China must recalibrate, in line with economists, to be much less depending on funding in areas like infrastructure and actual property and extra reliant on shoppers.

“The problem has been making an attempt to offer the sector sufficient assist to deal with the transition with out stimulating one other property bubble or a rebound that makes these issues worse,” stated Julian Evans-Pritchard, the China nation head at Capital Economics, a analysis agency. “To get a turnaround within the financial system,” Mr. Evans-Pritchard added, “you actually need the property sector to stabilize.”

Chinese language officers have tried to place a ground underneath falling actual property gross sales in latest weeks however to date to little impact. Nation Backyard didn’t make a fee on almost $200 billion of debt on Tuesday and nonetheless has greater than 400,000 flats that it bought however has not completed constructing.

How the actual property market got here to be on the middle of China’s financial system was lengthy within the making. For years, everybody guess on housing. Native governments lined their coffers with the proceeds from promoting land. Households invested in flats. Jobs for builders, painters, landscapers and actual property brokers have been in abundance.

Earlier than its collapse set off the housing disaster, Evergrande was a narrative of success that ran alongside China’s progress. Based in 1996 by the entrepreneur Xu Jiayin, who’s often known as Hui Ka Yan, Evergrande constructed condo complexes that helped to urbanize massive sections of the nation simply as China’s agrarian financial system started to embrace capitalism.

As Evergrande borrowed from Chinese language banks and overseas buyers to gasoline a fast growth, it turned a behemoth with hundreds of subsidiaries. It moved into companies like bottled water, pig farming, electrical automobiles and even skilled soccer.

Evergrande’s mannequin was copied by different builders and actual property turned the single-biggest contribution to China’s breakneck progress. In 2020, the central authorities turned its focus to the debt that had piled up and restricted the power of actual property firms to borrow from banks. The coverage, generally known as the “three purple traces,” put a restrict on how a lot debt builders might have and left firms like Evergrande scrambling for money and turning to extra dangerous methods to keep away from a money crunch.

Evergrande ramped up an business follow of elevating cash by promoting flats earlier than they have been constructed. It additionally turned to staff, telling them to spend money on short-term loans or lose out on bonuses. And it persuaded individuals who had already purchased Evergrande flats to purchase funding merchandise providing large returns. Mr. Meng and his mother and father have been promised 8 and 9 p.c curiosity on their investments. They made cash on two of them in 2021, however by the following yr, curiosity funds had stopped altogether.

The intensive borrowing in China fed excesses in different sectors: Insurers purchased inns, and an leisure firm purchased a Hollywood studio. All of the financial exercise made it simple for the federal government to disregard the bubble that was constructing as a result of firms, together with Evergrande, have been serving to native governments — first by shopping for land after which by constructing complexes that contributed to financial progress that obtained native politicians promoted.

Now that the majority of those firms are within the graveyard of company extra, many are questioning what Beijing will do subsequent.

Consensus has emerged amongst consultants in China that it’ll not return to these days of extra. However questions stay, particularly because the broader financial outlook darkens.

“When you’ve got 30 years of rising costs, there isn’t a manner you possibly can cease that course of with out super ache in each a part of the financial system,” stated Michael Pettis, a senior fellow at Carnegie Endowment for Worldwide Peace.

Everybody who benefited from the actual property growth — the banks, native governments and households — has lots at stake. “The political query is, who takes the loss,” Mr. Pettis stated.

Till now, the federal government had made clear that dwelling patrons wouldn’t be the casualties of the reckoning in the actual property market. Regardless of having defaulted, Evergrande was allowed by officers to proceed constructing 300,000 flats final yr.

Evergrande’s significance for policymakers now seems to be over. This month, the authorities detained its founder, Mr. Xu, on suspicion of what the corporate referred to as “unlawful crimes.” A number of different high executives and staff of its wealth administration arm have been taken in for questioning.

Guaranteeing that flats promised by now-broke builders get constructed will price $55 billion to $82 billion, in line with estimates from economists on the Japanese monetary agency Nomura.

However these identical builders owe many different folks cash. Suppliers, like painters, builders and brokers, are ready on greater than $390 billion, by one estimate. Overseas collectors who lent billions to Chinese language builders are banding collectively to attempt to get a few of their a refund by way of sophisticated restructuring plans.

And China’s leaders might want to spend far more cash to bolster non-public companies and households to encourage them to spend and get the financial system shifting, stated Bert Hofman, an honorary senior fellow on the Chinese language financial system on the Asia Society Coverage Institute. It will imply transferring extra money into issues like rural pensions and rising well being care protection.

“Extra broadly, reforms must be put in place to handle the demand facet of the financial system with out utilizing actual property as a lever,” Mr. Hofman stated.

“Simply phrases is not sufficient,” he stated. “It’s about coverage actions and visual occasions that will give folks confidence to say sure, there’s something to this.”

Claire Fu contributed reporting from Seoul, and Patricia Cohen from Marrakesh, Morocco.