A potential default at developer giant Country Garden Holdings Co. has led to greater skepticism of the efficacy of China’s property policy help.

A group of builders that have received assistance in the form of state guarantees on yuan note sales have suffered the most in recent days, after Country Garden’s stumble showed that such aid hasn’t been sufficient to help avoid repayment risks.

Chinese authorities unveiled the bond plan a year ago to help select developers raise funds as offshore borrowing costs surged and new-home sales — a key source of cash — slumped. Country Garden was one of the initial participating builders. So was CIFI Holdings Group Co., which defaulted on offshore debt not long after selling a state-backed yuan note.

Dollar bonds from units of Gemdale Corp. and Seazen Group Ltd. — developers that were also among those first chosen to sell state-guaranteed local notes — extended recent declines Tuesday. The firms were Monday’s worst performers in a Bloomberg index of Chinese high-yield dollar notes, posting losses of at least 16%.

The property fallout and recent new-home sales declines add to China’s increasing economic strains, leaving anxious investors looking for stronger steps to turn the tide as missed payments have broadened to investment products at a financial conglomerate. The country’s central bank did unexpectedly reduce a key interest rate by the most since 2020 on Tuesday, just before another round of disappointing economic data were released.

Country Garden entering 30-day grace periods for two missed dollar-bond coupons that were effectively due Aug. 7 has sent China’s high-yield market to 2023 lows.

But the selloff is widening.

Dollar notes from Longfor Group Holdings Ltd. and China Vanke Co., two of the country’s few private-sector investment grade developers, lost at least 5% on Monday to be the worst performers in a Bloomberg high-grade index. They, too, saw further declines Tuesday.

Longfor’s notes plunged 24% in August, easily the biggest decliner in the investment-grade gauge, even as a unit reportedly paid a 1.72 billion yuan ($236 million) bond that matures this week. The company was the first developer last year to sell a state-guaranteed yuan notes.

“For companies like Longfor and Seazen, if they have enough cash flow to cover their operations they may survive this year,” said Amy Kam, a senior portfolio manager at Aviva Investors Global Services Ltd. “But if the market doesn’t take a turn for better by then, how long can they last?”

--With assistance from Alice Huang.