Some China developers likely to default

[SHANGHAI] China's slumping property market is fuelling speculation the industry is set for a shakeout as small developers face difficulty raising funds to pay off debt.

Yield premiums on Chinese real estate bonds denominated in US dollars have jumped 27 basis points this month to 574 basis points over Treasuries, the sharpest increase among emerging Asian countries, according to Bank of America Merrill Lynch indexes.

That compares with a 24 basis-point advance for Indonesian builders. Moody's Investors Service and Standard & Poor's said some smaller Chinese developers may default in the second half amid falling sales and shrinking access to credit.

China's real estate industry poses the biggest near-term risk to growth in the world's second-largest economy after new home prices dropped in the most number of cities in two years in June, according to JPMorgan Chase & Co. While government steps to ease property curbs helped builder bonds rally in July, they're giving up those gai…