The rescue of embattled Chinese property company Evergrande appears to have stalled, leaving the developer on the brink of default and threatening to unleash contagion through the country’s giant real estate sector, home prices and the economy.

The problems enveloping Evergrande, which has eyewatering total debts of $305bn, have hung over global financial markets in recent weeks and helped curb China’s post-pandemic recovery.

But the crisis could deepen further if Evergrande fails to meet a deadline of Saturday night to stump up a $83.5m bond interest payment, triggering an official default.

Evergrande has already been given a 30-day grace period to make the repayment after missing the initial deadline back in September. It has since missed other key offshore, dollar-denominated bond payments worth another $193.3m. The clock is now ticking on those debts as well.

The sprawling property-to-electric-cars empire founded by former steel executive Xu Jiayin in the mid-90s has been scrambling to offload assets in order to pay back some of its loans. Its Chinese creditors are expected to be prioritised, with foreign investors at the back of the queue.

Shares in its main Hong Kong listing have lost 80% in the past year and have been suspended since 4 October pending an announcement on how it is going to be rescued.

But there were signs that the process has not been running to plan, raising the prospect that Beijing will be forced to engineer a dismantling of Evergrande, the country’s second-biggest developer, by absorbing most of it into existing state-owned enterprises.

First, Evergrande’s negotiations to sell its 51% stake in its profitable property management unit, Evergrande Property Services Group, to another Chinese developer for $2.6bn have been suspended, according to reports. The buyer, Hopson Development Holdings, reportedly could not obtain the necessary agreement from the provincial government in Guangdong, which is overseeing Evergrande’s restructuring.

The sale of Evergrande’s 26-storey waterfront headquarters in Hong Kong was expected to raise another $1.7bn but the deal with Yuexiu has also reportedly been placed on hold for the same reason.

The state of the property market, which accounts for about 25% of the Chinese economy, makes for an alarming backdrop to these problems. Home sales by value tumbled 16.9% in September from a year earlier, after a 19.7% drop in August, according to Bloomberg calculations based on official data released on Monday.

With many other developers also feeling the squeeze and struggling to repay loans, the potentially colossal default of Evergrande could capsize the weakest, most debt-laden parts of the property sector.

China Properties joined a dozen others that have defaulted on over 47bn yuan ($7.3bn) of bonds this year, per an estimate from CRIC, a Chinese property consultancy, Reuters reported on Friday. S&P Global last week downgraded two of the bigger players, Greenland, which has extensive developments in London, Sydney and New York, and E-house Enterprise.

A smaller developer, Sinic Holdings, became the latest to have its rating put in “selective default” by S&P after it defaulted on $246m in bonds, having warned it was likely to do so last week.

Terry Chan, a senior research fellow at S&P Global Ratings, said the situation risked exposing other large Chinese companies that have expanded in similarly rapid fashion on the back of the three decades of debt-fuelled, breakneck economic growth.

“Should Evergrande default, there may be contagion effects for other developers, home prices, and the economy. Evergrande’s cashflow troubles foreshadow what could go wrong for liquidity-challenged Chinese corporates,” he said.

China’s corporate sector accounts for almost a third (31%) of global corporate debt, according a survey by S&P of 25,000 companies across the world. The sector’s debt-to-GDP leverage ratio of 159% is one of the world’s highest – the current global ratio is 101% – and presents a staggering $27tn headache for Beijing.

China’s president, Xi Jinping, has shown in recent years that he is determined to tackle the issue as he pursues his goal of “common prosperity”. He has clipped the wings of tech billionaires such as Jack Ma with firms forced to offload assets and concede control over data to regulators. Highly profitable private tutoring services beloved by China’s ambitious city-dwelling parents have been outlawed too.

Now the property sector’s “speculative” model is in Xi’s sights. Last year’s “three red lines” for balance sheets made it much more difficult for large developers such as Evergrande to secure the funding to keep the plates spinning on its borrow-and-build model.

However, Angus Coote of Jamieson Coote Bonds in Melbourne, Australia, said China’s central bank was “on the front foot”, flooding the market with liquidity – another 100bn yuan ($15.6bn) on Wednesday – and would contain the contagion.

“Banks have been told to keep lending to healthy developers,” he said. “The biggest ones can cause a ripple effect … but it’s manageable without any contagion is our view. Beijing is going to let it down slowly.”

Helge Berger, head of the International Monetary Fund’s China arm, told Bloomberg the risks to the wider economy had been “contained”(GBP) for now but that authorities should continue to monitor in case of escalation.