Investing in debt-ridden companies' stock The Hong Kong exchange on Monday suspended China Evergrande after the massive Chinese developer skipped a significant bond interest payment last week, its second offshore debt obligation in a week.

Evergrande's financial difficulties have raised fears that they might spread across the financial system and resonate worldwide, with liabilities equal to 2% of China's GDP.

The cash-strapped company announced on September 30 that its wealth management unit had made a 10% repayment of wealth management products (WMPs) that were due by the same date. Chinese retail investors predominantly own WMPs.

The company's treatment of overseas investors is in stark contrast to how it manages its onshore liabilities.

The two offshore payments, which bondholders claim were late, come as the corporation, which has almost $20 billion in offshore debt, faces $162.38 million in US dollar-denominated bond coupon payments due in the next month.

Economists believe that offshore investors who own roughly US$19 billion in bonds will face the brunt of any restructuring, with analysts anticipating that they might earn as little as 25 cents in the dollar.

On Monday, the Hang Seng index in Hong Kong fell 2.5 percent, while the Nikkei in Tokyo fell more than 1%.

According to Peter Cai, a research fellow at the Lowy Institute, the Chinese government has learned from past recent significant failures, such as the HNA aviation and tourism firm.

He added, "One missing piece is that the Chinese government is willing to let Evergrande fail."

"They are becoming more confident and experienced in allowing truly large and over-leveraged companies to fail."

While Evergrande's liabilities were significant, he noted the scenario was not the same as when Lehmann Brothers went bankrupt, where subprime mortgages were packaged and marketed throughout the entire economy.

"We're dealing with a highly leveraged Chinese property development company," he explained. "Despite its size, I believe it is unlikely to trigger the type of systemic meltdown that occurred in 2008."

He also claimed that Evergrande has significant land that it had refused to sell to pay off its debts.

The company's liabilities total around US$305 billion, which includes US dollar-denominated offshore bonds and approximately 170 billion yuan ($26 billion) due to Chinese banks. It also owes money to homebuyers who sold high-interest investment products when they signed a contract to buy a house.

Cai stated that China's banks would be able to withstand the losses.

"Look at the banks," he added, "they're some of the most profitable in the world."

"I believe that, in terms of how the restructuring process is unfolding in China, retail investors, particularly those who have purchased homes, are the ones who are most likely to have the highest preference.

"In terms of overseas [bondholders], they will almost certainly receive a haircut."

According to US Securities and Exchange Commission data, recent Evergrande bondholders include Van Eck, KraneShares, and JPMorgan funds.

Firms that specialize in owning distressed debt, on the other hand, have been buying up the bonds for as little as 30c in the dollar in recent weeks.

Analysts estimate that a Chinese government-run winding-up procedure may repay as little as 25c in the dollar to bondholders.

Last month, rating firm Fitch downgraded its prediction for the Chinese economy due to Evergrande's impending collapse and widespread concerns in its real estate sector. There have also been concerns that the collapse could lead to a drop in iron ore price if it slows building, which accounts for around 25% of the GDP.

Third- and fourth-tier cities, according to Cai, will bear the brunt of the impact.

"If you're looking for major cities in Shanghai, look no further than Beijing. "There is still a chronic shortage of housing in Shenzhen and all of these large cities," he said.

"I believe you will see collapse or decline in some regional areas, but this is unlikely to result in a national housing market collapse."

On Monday, as markets around Asia reacted to Evergrande's recent troubles, Kazutaka Kubo, senior economist at Okasan Securities, said: "The biggest problem is not Evergrande's default, but the environment that has led to its downfall." Authorities regulate housing loans and lending to real estate companies. Markets are already hunting for the next Evergrande.

"The risk of Evergrande's woes spreading to the entire Chinese property sector is growing."