Before Hong Kong I would probably have agreed with you, but You're assuming a purely rational reasoning. For China, and Xi in particular, there is a big element of national and personal pride at stake. It's for the same reason they have risked strangling Hong Kong in order to bring it more in line with the rest of China.

Xi (more so than his predecessors) is quite happy to take a short term loss for (what he sees) as a long term gain. In addition, he would love to be remembered in history as the man he reunified China.

Furthermore, Hong Kong and Crimea show that western powers aren't spoiling for a fight - especially if you can present them with a fait accompli.

Agreed. This is what an obsessive focus on "facts and logic" at the expense of a similar focus on emotion, instinct, and subjectivity gets you. People have values that often contradict rationality, and in too many cases they're ready to kill and die for them.

The US is completely dependent on China for manufacturing. China is completely dependent on the US for funding development. It would be bad news for either frenemy to start anything major.

Their posture is potentially lessening that dependency somewhat though - a company I work with, for example, now tries to find suppliers in Malaysia, Thailand, etc. for metalwork, PCB manufacture, assembly and things like that, which all would have just gone straight to China five years ago. This is a pretty small manufacturer with a fairly niche product, but I imagine others are thinking the same way.

But the western markets rely on china.

Basically, if we "built the wall", they'd still have all the stuff, and we'd have increasingly more worthless numbers in our bank accounts.

Relying on one country for most of our production needs is stupid.

Now it is. But their population alone is larger than all the western markets combined, so it probably won’t remain so indefinitely.