:Turmoil at China’s largest private developer Country Garden could set off a “vicious cycle” of financing stress on the country’s real estate investment trusts (REITs), brokerage J.P. Morgan warned on Monday.

The brokerage flagged issues at Chinese conglomerate Zhongzhi Enterprise Group, after two Chinese listed companies said they had not received payment on maturing investment products from its unit, Zhongrong International Trust.

REITs would be forced to dip into their profits if they fail to honor payments on debts, analysts said, putting at risk nearly 2.8 trillion yuan ($385.78 billion) worth of assets under the management.

These fresh worries come as Country Garden sought to delay payment on a private onshore bond for the first time and suspended trading in 11 onshore bonds.

“Unlike banks, which have holding power and are able to roll over credit to wait for an eventual resolution, alternative financing channels such as trusts may default once trust investors are unwilling to roll over the products,” J.P.Morgan analysts led by Katherine Lei said in a note.

“The default events may lead to a chain reaction on developer financing, adding stress to POE (privately owned enterprise) developers and their creditors.”

China’s property sector has been grappling with a liquidity crunch since late 2021 when China Evergrande Group collapsed and triggered a series of debt defaults.

Rising trust defaults would drag economic growth by 0.3-0.4 per centage points directly, J.P.Morgan warned.

“Beijing has already done some things to ease the tensions in the property sector, but it has been too slow and too little,” analysts at Nomura said, adding that China will be compelled to take more steps.

A cut to the reserve requirement ratio and a “small-scale” government bailout program for local-government financing vehicles could be some of policy routes, J.P.Morgan analysts said, but they do not see large-scale monetary easing or fiscal stimulus.

($1 = 7.2581 Chinese yuan renminbi)