Illustration: Lu Ting/GT

The potential risks facing China's domestic housing market were widely discussed at a forum held Tuesday in Shanghai by Euromoney Seminars, a division of Euromoney Institutional Investor PLC. The concern stems from recent evidence of slowing growth in the country's once red-hot property sector, not to mention China's first ever debt default by a real estate development company in March.

Last month, Zhejiang Xingrun Real Estate Co, a developer based in Fenghua, Zhejiang Province, reportedly failed to repay a total of 3.5 billion yuan ($565 million) owed to at least 15 banks. This default, combined with signs of waning demand in several major markets, has put investors on edge about the repayment abilities of developers following years of credit-fueled construction. Indeed, developers in some cities - notably Hangzhou and Changzhou - have slashed prices at certain projects in response to apparent oversupplies.

While these somewhat troubling events make excellent fodder for headlines, it's important to remember that not all developers are in the same boat as Xingrun. In fact, the debt problems facing larger, better-funded enterprises still look quite manageable.

It's widely believed among observers that 2014 will mark a divergence between China's property developers. Under tremendous financial strain, many smaller industry players operating in third- and fourth-tier cities are now dangerously reliant on high interest loans secured through shadow-banking credit packages. According to reports, many of these companies are plagued not just by a weakening market, but by internal management problems and high operating costs. It's entirely possible that several of these developers will go bankrupt over the coming months as their loans come due.

But even taken together, these smaller companies have a very narrow footprint in China's housing market. Larger and well-funded developers - especially those with public listings - are in a much better position to ride out the difficulties that lie ahead. Financially, many of these companies have access to diversified funding channels which extend into foreign capital markets. According to a report released by Moody's Investors Service late last month, 21 Chinese property developers had issued $9.2 billion in bonds overseas for the year-to-date as of March 20, compared with $5.5 billion in the fourth quarter in 2013.

What's more, China's large developers have projects spread across a multitude of urban markets. Strong sales results in first- and second-tier cities can help them offset weaker performances elsewhere.

Data from China's National Bureau of Statistics show revenue from residential home sales in China were down by 5 percent year-on-year to 598 billion yuan in the first two months of 2014. During the same period though, combined sales revenue from 20 large property developers that Moody's tracked increased by 18.6 percent year-on-year to reach 173.9 billion yuan, according to calculations from Moody's. In fact, within this statistical group, two of China's biggest property firms, Country Garden Holdings Co and Evergrande Real Estate Group, saw sales surge by 104 percent and 75 percent year-on-year respectively.

As Chinese policymakers expose the housing sector to market forces, smaller developers that can't compete will naturally be eliminated. This will leave more opportunities for bigger developers that can make better use of their resources. To a certain extent, we can expect this process to defuse the systemic problems which might result from the closure of smaller property enterprises.

Still though, this is not to suggest that 2014 will be all smooth sailing. As a whole, this could be a tough year in terms of profit growth as rising costs weigh on developers. Fresh administrative curbs could also dampen housing prices in upper-tier cities over the coming months. Additionally, the government's pledge to increase affordable housing supplies could leave an impression on demand as well.

After years of runaway growth, property development may no longer be the high-profit industry it once was. Government policy action and natural market dynamics mean the industry might have to accept more moderate growth over the midterm as financial gaps between small and larger developers widen.

The article is compiled by Global Times reporter Yu Xi, based on speeches on the 8th Annual China High Yield and Corporate Bond Forum 2014. bizopinion@globaltimes.com.cn