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The Fed warns that China’s property market stress poses a risk to the U.S.

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Turmoil in China’s real estate sector could threaten the United States, the Federal Reserve said in a report on Monday.

In its twice-yearly update on the American financial system, the U.S. central bank said it was concerned both with how high the levels debt had grown in China’s corporate sector and with how Beijing was tackling the debt.

The financial troubles of China Evergrande Group, the world’s most indebted developer with a $300 billion debt pile, has set off panic in global financial markets and at home. What initially emerged as concern over one heavily indebted company has spread to a number of other real estate companies. Those developers are showing their own signs of stress as they struggle under mountains of debt and a property market slowed by tightening government controls over borrowing.

The regulatory focus, the Fed said, “has the potential to stress some highly indebted corporations, especially in the real estate sector, as exemplified by the recent concerns over China Evergrande Group.”

These stresses, in turn, could spill over into the broader economy.

“Given the size of China’s economy and financial system as well as its extensive trade linkages with the rest of the world, financial stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States,” the Fed said.

At least six Chinese property developers have defaulted on foreign bonds in recent weeks, rattling domestic financial markets and raising the cost of borrowing for all Chinese companies. Property prices are slowing and fewer people are buying apartments, worsening the outlook for the sector. Evergrande, which has more than one million unfinished apartments across the country, is facing a deadline on Wednesday to make at least $150 million in bond payments.

After decades of binge borrowing, Chinese regulators have cut off real state sector funding. Many developers sold apartments and took payments from home buyers before they had completed the properties, creating a difficult situation not just for banks and investors but also for individual homeowners.

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