Could this unwelcome development put BHP shares in the danger zone?

BHP Group Ltd (ASX: BHP) shares are down 0.3% during the lunch hour on Friday.

Shares in the S&P/ASX 200 Index (ASX: XJO) mining giant closed yesterday trading for $45.78. At the time of writing, shares are changing hands for $45.64 apiece.

That's today's price action for you.

Now, could this unwelcome news out of China put BHP shares at risk?

What's happening with Country Garden Holdings?

Country Garden counts as China's largest private property developer and sixth-largest builder overall.

That matters to BHP shares, as it's China's steel-hungry construction activities that drive the bulk of the demand for iron ore, BHP's top revenue earner.

Unfortunately, like many of China's real estate companies, Country Garden looks to be in serious financial strife.

With sales tumbling in 2023, the company is likely to report a massive net loss for the first half of the year in the range of US$7 billion.

Country Garden stated (quoted by Bloomberg):

Due to the recent deterioration of sales and refinancing environment, the available funds in the book of the company have been continuously reduced, resulting in a phased liquidity pressure.

That "phased liquidity pressure" saw the company miss interest payments on two bonds earlier this week, fuelling fears of insolvency. Country Garden has a 30-day grace period to make those payments before it officially defaults.

And a default of this size could throw up some weighty headwinds for BHP shares.

"Think of the knock-on implications for commodities & mining companies," Jessica Amir, market strategist at Moomoo, posted on X (formerly Twitter).

Amir noted that Country Garden employs 70,000 people and is building 3,000 housing projects in smaller cities. She added, "That's four times more than Evergrande."

Amir said Evergrande's 2021 implosion helped drive an approximate 40% collapse in the iron ore price from May through November 2021. And BHP shares fell some 34% from August to November before recovering.

But that could well open up some bargain-hunting opportunities in the not-so-distant future.

Following the big sell-off in late 2021, the mining companies "all rebounded and hit new all-time highs" Amir said.

"So if we see a sharp pullback, consider many will be using it as an opportunity to buy high-quality businesses, at a cheaper price," she added.

The iron ore price currently stands at just under US$101 per tonne.

How have BHP shares been tracking?

BHP shares are up 17% over the past 12 months.