What happens when a major investment trust misses scheduled payments to investors? China will soon find out.

This month, Zhongrong International Trust, a financial services provider with $108 billion in assets under management (AUM), failed to make interest and principal payments to three of its corporate investors.

If you think $108 billion AUM is "too big to fail," remember that Lehman Brothers collapsed in 2008 with over $600 billion in assets.

If Zhongrong's defaults snowball, talks of a "chip war" and the CCP's spying on America through TikTok could be the least of your China worries.

Another financial crisis?

Zhongrong's default isn't an isolated incident.

Trust funds in China still have about $155 billion in exposure to the country's property sector, which is "currently mired in its worst-ever slump," according to CNN. These trusts are "now under great threat, in our view," says Japanese financial services provider Nomura.

While analysts believe the Chinese government will intervene (i.e., print money) before events like Zhongrong and Evergrande lead to a full-blown financial crisis, fears of "contagion" have already emerged.

Contagion is one of the worst words you can hear in finance. It refers to the spread of economic risk from one sector or region to another, like dominoes, leading to a domestic or international crisis.

China's shadow banking sector is roughly the size of Britain's economy. If more trusts default on their payments, contagion won't just be an uncomfortable finance term but something much more tangible.

The first casualty appears to be the Chinese stock market. While key stock benchmarks in Europe and the U.S. are all up, Hong Kong's Hang Seng index is down more than 9% this year.

But make no mistake, Zhongrong isn't just a Chinese problem.

When China's problems become everyone's problems

Zhongrong has many analysts asking whether China is experiencing its own Lehman Moment.

The term refers to the 2008 bankruptcy of global investment bank Lehman Brothers, which was the major turning point in the Global Financial Crisis.

According to Jeffries global strategist Chris Wood, Zhongrong's default is a "real Lehman moment" and is much more serious than Evergrande.

Unlike Evergrande, whose problems were caused by the government's attempt to stop property developers from borrowing more money, Zhongrong signals the start of a liquidity crisis for trusts exposed to Chinese real estate.

That's a problem For U.S. investors, too, because Chinese real estate is feeding into broader unease about the global financial system and could trigger a flight to safety.

In the short term, investors may respond by buying safer assets such as U.S. Treasurys, which currently offer attractive interest rates.

If "flight to safety" is the new play, expect more money to flow into gold as well, according to Quincy Krosby of LPL Financial. "China could be a catalyst for having more money coming into the Treasury market, maybe into gold, as safe havens," he said.

If investors opt for safety, the first shoe to fall is usually the stock market. In a typical environment, these "riskier" investments fall when investors are trying to survive a market crisis.

Beyond these immediate effects, what's going on in China is indicative of a much broader trend of slowing economic growth.

China is the world's second-largest economy. Many believed it would rebound strongly from its self-imposed COVID lockdown.

Instead, it's struggling under the weight of a shaky property market, not to mention weaker consumer spending and burdensome local government debt.

Investors with emerging markets in their 401(k)s are also feeling the pinch.

Many Asia-focused investment funds booked sizable losses because of Evergrande. If the crisis intensifies with the latest defaults, investors may expect their emerging market stocks and funds to take a hit.