Zhongrong International Trust, which traditionally had sizeable real estate exposure, missed payments on dozens of investment products since late last month, a senior official has told investors.
China's $US3 trillion ($A4.6 trillion) shadow banking sector is roughly the size of Britain's economy, and concerns about its outsized exposure to property and risks to the wider economy have grown over the past year.
A string of defaults in the shadow banking sector could have a wide ranging chilling effect as many individual investors are exposed to the high-yielding trust products. Missed payments could weigh on already fragile consumer confidence in the absence of stronger support measures from Beijing.
Barclays was among a number of global banks to cut its forecasts for China's 2023 growth after weak data on Tuesday, citing a faster-than-expected deterioration in the housing market. It lowered its growth forecast to 4.5 per cent from 4.9 per cent.
So far, China has largely managed to avoid a spillover of a debt squeeze in the property sector to the country's $US57 trillion financial industry despite a rising number of developers defaulting on repayment obligations.
But news of fresh defaults has triggered contagion fears.
Adding to the gloom, China's new home prices fell in July for the first time this year, the latest in a string of downbeat data that underlines the urgency for bolder policy support.
Prices fell 0.2 per cent month-on-month on a nationwide basis and 0.1 per cent year-on-year, according to Reuters calculations based on National Bureau of Statistics (NBS) data.
But the picture is far worse outside of the country's megacities like Shanghai and Beijing. Average new home prices in the 35 smallest cities surveyed by NBS fell for the 17th straight month in June on a year-on-year basis.
The worsening debt crisis at major developers including Country Garden, the country's largest private developer, has scared away many home buyers, with property investment, home sales and new construction contracting for more than a year.
Given the property market has traditionally accounted for about a quarter of China's economy, some analysts say the slump, combined with the shock from three years of strict COVID measures, has had an unprecedented impact on activity.
Most analysts expect further falls in home prices and sales over coming months.
Gerwin Bell, PGIM fixed income's lead economist for Asia, said Country Garden's trouble underscored that the fallout from the property market crash has not been contained and is spilling over across the wider economy.
"Arresting the adverse spillovers from property will require significantly larger fiscal stimulus than the authorities have so far entertained. We expect the Chinese authorities to soon come to the same conclusion."
China's property sector continues to struggle despite an extension of financial support for developers and incentives for first-time home buyers and upgraders.
Among 70 cities, 49 saw a fall in new home prices month-on-month in July from 38 cities the previous month.
