The central authorities have so far resisted the temptation to bail the developers out, concerned about generating “moral hazard”.

Evergrande is the biggest of a lengthening list of Chinese developers – Fantasia, Simic, Sunshine, Kaisa and Aoyuan among them – experiencing severe liquidity issues as a consequence of a broken funding model and the impact their difficulties have had on demand within the sector.

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They’ve been cut off from debt markets and a core source of funding and cash, the pre-sales of apartments yet to be built, has disappeared because of their inability to finance the completion (or even the start) of their planned developments.

The central authorities have so far resisted the temptation to bail the developers out, concerned about generating “moral hazard” and being seen to be rescuing billionaires even as Xi Jinping is orchestrating a major shift in economic and social policy from encouraging wealth creation to redistribution of wealth.

Their efforts appear confined to trying to contain the fallout from the implosions of the developers, which the People’s Bank of China says can be contained. Hui is said to be well-connected in Beijing, so it was noteworthy that the PBOC blamed “poor management” and “reckless” expansion for Evergrande’s woes in its response to Friday’s news.

The scale of Evergrande’s liquidity issues is daunting. Apart from the $US260 million, it has another $US82 million ($A117 million) of payments that have been overdue for 30 days and therefore have to be made on Monday to avoid a formal default. It has another $US255 million ($A364 million) where the grace periods will expire in late January and a further $US37 billion ($A53 billion) or so due to be repaid by June next year.

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Whether the authorities can prevent the implosions at Evergrande and its peers from infecting the wider economy will be the critical challenge for Beijing.

Until now, they had concentrated on trying to insulate the apartment buyers and suppliers to the sector from its struggles, largely leaving it up to Evergrande’s lenders and the other developers to devise their own response. Their priority has been to keep suppliers and contractors afloat and making sure that the apartment buyers get what they paid for.

Evergrande and its advisers (including the world’s leading debt restructuring firm, US investment bank Houlihan Lokey) and the team from Guangdong that has been sent in “at the request” of the company will presumably now accelerate their efforts to agree a restructuring of the group’s debt with creditors, particularly international bondholders.

The PBOC said on Friday that investors in the offshore bond market were relatively mature and sophisticated and there was a clear legal framework for dealing with their issues -- i.e., they can look after themselves.

A major restructuring including big “hair-cuts” and maturity extensions, could make it possible to have an orderly winding down of the group and avoid the formal, and inevitably messy, collapse that would send the dominoes flying through the sector and its suppliers and threaten China’s financial and economic stability.

That process, which usually involves a lot of brinkmanship as creditors try to minimise their losses, will test China’s sensible resolve that it isn’t going to bail supposedly sophisticated creditors (particularly foreign creditors) in private sector companies out or create government safety nets under the wealth of “reckless” billionaire entrepreneurs.