Evergrande has missed some of its major bond payments. What now?

A Mid-Construction Evergrande Project in Taicang, China

By midnight US Eastern time on September 23, Evergrande, the debt-ridden Chinese real estate giant, is said to have paid $83.5 million to foreign investors. At least some of these investors hadn’t been paid by the next morning, according to Reuters and the Financial times— a critical milestone that renewed fears of Evergrande’s complete collapse.

Evergrande owed the $83.5 million in coupon payments on dollar-denominated bonds it sold to offshore investors, and the Chinese government advised the company to avoid default. The previous day, the company announced it had privately negotiated with Chinese bondholders for a $36 million coupon payment that would also be paid on Sept. 23. But that day passed in total silence, with no statements from Evergrande about how it planned to meet its obligations to its foreign bondholders.

Has Evergrande defaulted?

The terms of the bonds — with a face value of nearly $2.03 billion — give Evergrande a 30-day grace period to make the payment. So under this series of payments, Evergrande will only default if it can’t pay out within the grace period.

But Thursday’s bloated deadline is certainly not a sign of health recovery. Evergrande also missed payments to a municipal government in Anhui province, the Financial Times reported. And more deadlines are coming. Evergrande owes another $47.5 million in coupon payments to offshore investors next week; in total, it must pay out $669 million in coupon payments by the end of the year. And next year, Evergrande must repay $7.4 billion when some of its bonds mature.

“We are still a long way from solving Evergrande’s payment problem,” Julian Evans-Pritchard, a senior China economist at Capital Economics, said at a webinar Thursday morning. “It is essentially struggling with a liquidity crisis. It may very well be so overloaded that, without any support, it ends up failing more of its obligations.”

What will the Chinese government do about Evergrande?

The lapsed payments again raise the question: what will China’s next step be? Although the government has assembled a team of accountants and lawyers to investigate Evergrande’s books, it has not yet announced any announced restructuring of the company’s debt. And while China has also periodically injected cash into the banking system, it hasn’t said anything about it save evergrande.

The government will not feel the greatest urgency to act until Evergrande’s problems threaten to trigger a systemic crisis – the so-called ‘contagion’ in the financial sector. In his webinar, Evans-Pritchard said the industry might even be able to accommodate a total collapse of Evergrande.

“If you look at the offshore bonds, the major holders are all major global banks and asset holders,” such as UBS and HSBC, Evans-Pritchard said. In China, “Evergrande has taken out loans from about 20 commercial banks, and if you look at the biggest three, their exposure to Evergrande is less than 3% of outstanding loans.” There may be smaller regional banks that have provided loans to Evergrande, he added. “Maybe we don’t know about that, and they could get in trouble.” But the government could act to save those banks, rather than save Evergrande itself.

Protecting China’s Banks From Evergrande Collapse

One of China’s top priorities will be to prevent the interbank system from collapsing – and the government’s particular advantage, compared to the US government during the 2008 crisis, is its absolute control over banks. “All the major players are state-owned, so the government is likely to step in to ensure there is enough liquidity,” Evans-Pritchard said.

This will allow the Chinese government to avoid the kind of abrupt revaluation of counterparty risk that happened in the wake of the collapse of Lehman Brothers: banks wary of lending each other, or willing to do so only at great expense. “Even if there are concerns about counterparty risk, the government can step in and say, ‘Well, you should just keep lending to each other’.”

Sign up for the Quartz Daily Brief, our free daily newsletter with the world’s most important and interesting news.

More stories from Quartz: