An illegally constructed building being demolished in Xi'an, China, January 2014
Rooney Chen / Reuters

The Chinese real estate sector is teetering. The largest private Chinese developer has defaulted on its external bonds. Most developers are struggling to refinance their domestic bonds. Home prices have gone down for the last 11 months. New construction is down 45 percent. The most acute stress can be traced back to developers who raised large sums by preselling yet-to-be built apartments. Some, however, failed to set aside reserves to guarantee the completion of these units, and households that took out mortgages to buy these homes have threatened to stop paying.

China’s real estate crisis poses financial risks, but it is

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