There is a steel toboggan run offering rides down the side of the Great Wall of China that would fail the UK’s most basic health and safety tests. It could be a metaphor for the Chinese economy if, as many people believe, Communist party leaders allow a credit bubble to run out of control in a desperate attempt to maintain an electrifying 7% growth rate.

The Chinese are not alone when they turn a blind eye to excessive borrowing. Most nations depend on large and growing amounts of borrowing to fund everything from investment to the most basic services. In China’s case much of the debt is being used to offset the transition from a state that manufactures iron, steel and cheap electronics, textiles and consumer goods to one that embraces hi-tech industries attuned to environmental concerns. This creates millions of losers in traditional smoke-stack industries, lots of them in the north and west of the country.

Chairman Xi crushes dissent but poor believe he’s making China great Read more

It’s a story that is familiar in Europe, where governments spent the 1980s racking up huge debts to support dying industries while the UK spent its oil revenues funding the unemployment benefits of steelworkers and miners. But the scale of China’s industries is such that when a transition is under way, the borrowing is colossal and the threat to the rest of the world is unnerving.

The International Monetary Fund warned last week that the debt building up in China’s state-owned industries was a threat to the country’s stability. Private debts are also stratospheric, mainly from a property boom that has left many people with sky-high monthly mortgage payments or dizzying rents. Erik Britton, director of Fathom Consulting, an economic consultancy, says he is concerned that China’s debt-fuelled growth is building towards a major crash some time in the next five years.

Diana Choyleva, a China expert who runs Enodo Economics, a consultancy, says that in answer to the growing crisis the Communist party is exerting greater influence over indebted state-owned industries, ending a long period when competition with foreign companies was considered a solution.

In August, Reuters reported that more than a dozen top European companies operating in China had met to discuss their concerns about the growing role of the party in joint ventures with state-owned enterprises. One executive told the news agency that party officials wanted state-owned enterprises to have the final say in joint decisions and allow the local party secretary to be the joint venture chairman.

Choyleva believes that Beijing’s challenge over the next couple of years is to exert more control to deal with bad debts built up by state-owned enterprises without scaring off foreign banks and joint venture partners, which could take on some of the debt themselves.

Keith Burnett, vice-chancellor of Sheffield University, is a regular visitor to China and a mainstay of UK delegations to Beijing. He says he is struggling to persuade UK businesses to enter joint ventures with Chinese partners, despite the obvious opportunities of selling to a country of 1.4 billion people.

“There is a real push at senior levels in Beijing to get manufacturing higher up the value chain. They know they need to expand in aerospace, electric cars, pharmaceuticals. This is coupled with a worry that many people are being left behind in steelworks and basic manufacturing plants.

“British companies are fearful they will lose their intellectual property. They are happy to sell their wares in China, but they say ‘we don’t want to share information with you if it means losing our crown jewels’,” he says.

Chinese officials argue that the 19th national congress of the Communist party on Wednesday, when President Xi Jinping is expected to be re-elected leader, will reinforce their anti-corruption drive and strengthen the independence of the judiciary, so foreign businesses can pursue intellectual-property disputes through the courts with more success.

However, a courts system that offers an independent arbitration service seems a distant prospect. Companies remain sceptical about their hopes of pursuing intellectual-property theft claims; foreign investors are wary of buying the shares and bonds of companies that might arbitrarily be declared bankrupt. It is the courts that hear bankruptcy petitions, and Choyleva says there is little consistency over why some are declared bankrupt and others not.

In 2013 the party’s third plenum reform statement said the market should play a “decisive” role in resource allocation, while reaffirming that the state must play a “leading role” in the economy. It seems clear that, as the population gets older and generating previous levels of growth gets harder, the state is grabbing back key levers of power. The market is still useful, but difficult times and competing aims call for more direction from the centre. Somehow Xi must keep raising 10 million people a year out of poverty, promote a green economy and open Chinese markets to foreign competition and collaboration. It appears that the first two are incompatible with the third.