According to the company, it currently supplies half of the additive used in the production of aluminium coating for Chinese fighter jets. And, SunXing said, its technology means China does not need to rely on imports to produce high quality aluminium alloys for these critical applications.

The gathering clouds of the trade war and the increasing likelihood of a decoupling between the US and Chinese economies have given added impetus to SunXing’s race to develop new products which, it hopes, will reduce China’s dependence on external suppliers.

Anecdotal evidence indicates many Chinese companies, like SunXing, are devoting growing resources to the development of their own technologies in core and intermediate products to replace imports.

The preparation of “spare tyres”, as the strategy is known, gathered pace in May after the US slapped an export ban on American companies supplying Chinese telecommunications giant Huawei Technologies.

Pony Ma Hua-teng, co-founder and chief executive of Chinese online giant Tencent Holdings, also cautioned in May that the trade conflict may develop into a technology war.

“If we do not make painstaking efforts to develop our own infrastructure and core technologies, it will be hard for China to sustain its growth in the age of a digital economy,” he told a forum in China’s southwestern province of Yunnan.

While Chinese companies grapple with the uncertainties of relations between Beijing and Washington, US companies are also dealing with the strain by moving parts of their operations away from China, in anticipation of a further escalation in the trade war.

According to a survey in May by the American Chamber of Commerce in China, more than 40 per cent of about 250 member companies questioned were considering or had already moved parts of their supply chain operations away from China.

This fresh evidence that the world’s two superpowers are indeed drifting apart has experts arguing whether there will be a comprehensive decoupling between the two deeply intertwined economies.

Li Xiangyang, director of the National Institute of International Strategy, a think tank under the Chinese Academy of Social Sciences, last month called for more research into the consequences of disengagement.

Speaking at a symposium in Beijing, he also suggested the need to study what risk aversion measures could be taken if the decoupling between the world’s two largest economies did happen.

“There are still debates in China about whether the two countries will decouple. However, it seems to be gradually becoming a reality as bilateral conflicts unfold,” Li said.

“The ultimate target [of the US] is to contain the rise of China … this is a game of life-or-death for the US,” he explained. “It will be a long-term issue and China needs to be prepared for a break-up.”

Suppliers scramble for Plan B as US-China tech war starts to bite

Wang Yiwei, a professor in international relations with Renmin University in Beijing, said the US was the real culprit.

“For decades, China has supported free trade, globalisation and the international division of labour,” Wang said.

“A decoupling with the US was unimaginable until the US began to weaponise the economic interdependence [between the two countries] in the trade war.”

China-US relations have been in uncharted territory since the end of 2017 when the US abandoned a four decade-long relationship of engagement and labelled China a strategic competitor.

In response, China has criticised the US for undermining the world trading system and stressed that it would stick to its own reform path and repudiate the copying of Western values.

Since then, the US has been displaying “how decoupling would transpire if it was regularised as policy”, according to Sourabh Gupta, a policy specialist at the Institute for China-America Studies in Washington.

What started as a trade war in July last year, with punitive tariffs imposed by Washington on US$250 billion worth of exports from China, escalated steadily until the Chinese technology company Huawei was placed on an entity list over “national security” concerns.

Milestones along the way, said Gupta, included the boost to hawkish voices in the White House when China made a concession – allowing US inspectors at ZTE headquarters to monitor its operations and compliance – in exchange for Washington agreeing to drop a ban on the company, despite its having to pay a hefty US$1.4 billion fine.

In other steps, he pointed out, the US had declared critical infrastructure and technology areas off-limits to Chinese investments, including telecoms and the 5G space, as well as emerging technologies developed by US early stage technology firms.

US-China trade war caused ‘self-inflicted’ damage to the global economy

The US has also denied China access to and control of any sensitive information, including Americans’ personal data, curtailed Chinese scientists’ access to funding from US primary research institutes, and denied visas to some groups and individuals affiliated with the Chinese government.

In retaliation, China has levied additional tariffs on US$110 billion worth of US exports.

It has introduced its own entity list, and threatened to target “unreliable” foreign companies that are deemed to have damaged the interests of China and Chinese firms, although it has yet officially to put any company on the list.

Despite all these actions, from both sides, Gupta said the two countries were still on the margin of any major decoupling.

“What has really happened are shots across the bows. However, I am sceptical that full-blown decoupling can ever become core policy. There is too much fraternisation between the two sides to have such clean separation take place,” he said.

“Besides, there is too much money that the US side would have to leave at the table if it was to walk away and seek decoupling,” Gupta said, referring to the interdependency between the two countries across value chains and the broader economy.

As an example, American chip makers, which sell billions of dollars of products to Huawei every year, are now lobbying the White House for exemptions so they can continue to sell to the giant Chinese equipment maker.

US to deal with Huawei waiver applications within weeks: commerce chief

Wang Dan, an analyst with Hong Kong-based Gavekal Dragonomics, agreed. “Huawei is too big and enmeshed in the global technology industry for US companies to write it off as a customer easily,” he said.

“The Trump administration has shown that it does not have the political resolve to aggressively enforce export controls. The globally distributed nature of the technology industry means that US export controls are more porous than they might appear.”

While politicians may have already set a course for the fracturing of bilateral economic relations, experts pointed out that technology was a powerful force against decoupling.

George Magnus, a research associate at Oxford University’s China Centre, said technology was a globally integrated and systemically important sector.

“You can’t ban the sale of components to Huawei, for example, without also having an impact on firms that sell parts to make those components.

“You can’t penalise US companies in some sectors that are deemed to be harming Chinese interests without affecting other firms that may end up being penalised indirectly,” he said.

If the targeting of individual firms – especially technology firms – by both sides were to become the norm and the problem deteriorated, it would be “the most pernicious of measures,” Magnus said, “not least because it might well lead to both a bifurcation of global technology standards and systems and the ensnarement of firms in third countries”.

James McGregor, chairman of APCO Worldwide’s greater China region, said one of the consequences of decoupling was that there would probably be less globalisation and, in its place, a move towards regionalisation.

“There are lots of countries involved in cross-border investments, supply chains, and manufacturing networks. So what we are likely to see is less globalisation and more regionalisation, with Europe, Asia and America having their own clusters to some extent,” McGregor said.

“Multinationals will have to be involved in each region, as will Chinese companies, to be globally competitive. The major shapers will be cost and efficiency, and political trust when it comes to technology,” he said.

This is apparently already happening as countries seal regional free trade deals which welcome some while shunning others.

China’s commerce ministry counts high cost of courting trade deals

In June, Mexico became the first country to ratify the United States Mexico Canada Agreement, signed late last year by the leaders of the three countries, which aims to build a strong and competitive North America.

For it to go into effect, it has to be approved by the legislatures of all three countries.

Across the globe, momentum is building for the Regional Comprehensive Economic Partnership (RCEP) – a free-trade agreement between China, the 10 Asean member states, Australia, India, Japan, New Zealand and South Korea.

The latest round of RCEP negotiations begin on Monday in Zhengzhou, Henan province, running through to July 31, and will be followed by a ministerial meeting in Beijing in early August.

Discussions on the creation of the RCEP agreement have gathered momentum since 2012 and, although progress has been slow – with 26 rounds of negotiations so far – heads of the member countries pledged in November that they would finalise the deal this year.

Beijing is keen to increase regional integration through RCEP and other means, particularly against the backdrop of ongoing US-China tensions, according to Chinese sources.

OMG: how to know your FTAs, from RCEP to CPTPP

Decoupling, however, is by definition a double-edged sword. Inevitably, both China and the US will have to pay the price of slower economic growth and more expensive imports as they disengage.

In the US, the growth rate has already slid from 4.2 per cent in the second quarter of 2018 to an annualised rate of 3.1 per cent in the first quarter of this year.

In a similar vein, China’s GDP growth has weakened to 6.2 per cent in the second quarter of 2019, the lowest for the country since March 1992.

According to Lu Ting, chief China economist at Nomura, China’s GDP growth may further ease to 5.8 per cent next year if next Tuesday’s resumed trade talks in Shanghai yield no immediate results, with the consequence of additional tariffs on exports from China.

But experts said Beijing would not sit still while its economy suffered, and there was room to make adjustments, or even to strike a deal with Trump in the months ahead.

“China can improve intellectual property protection, accelerate reforms and open the market wider to foreign players,” researcher Chen Fengying said.

Chen, former head of the World Economy Institute at the China Institute of Contemporary International Relations, said these were things China could and should do, despite rising nationalistic criticism there which has seen advocates for a faster pace of reform and opening up labelled as traitors in recent months.

“They are for China’s own good, and not compromises or concessions to the US,” she said.

Steve Tsang, director of the SOAS China Institute at the University of London, said the course of decoupling was not set in stone and could be changed, but it would not be reversed.

“The general sense that the previous US-China policy of engagement has failed, enabling China to catch up and pose a security threat to the US, is a bipartisan one [in Washington], so it will survive Trump,” Tsang said.

“Chinese President Xi Jinping cannot afford, and so will not allow, his administration to be ‘bullied’ by Washington into submission.

“While Trump started [the decoupling], Xi has been preparing for [China’s] own version for a while,” he said, noting the Chinese Communist Party’s scepticism and denial of “western concepts” such as constitutionalism, universal values and civil society.

“Since Xi has intended to decouple at a time of his choosing anyway, he will not reverse course now since the US is on the offensive on this,” Tsang said.

Meanwhile in Shenzhen, SunXing Light Alloys Materials is continuing its efforts to reduce China’s reliance on overseas expertise.

The company recently completed research into a new ferrotitanium product, crucial in the making of high-end special steel with military and civilian applications.

SunXing deputy manager Zhou Zhi is confident the company is on the right track, regardless of how the feud between China and the US plays out.

“China must be able to produce [special steels] independently and own the supply chain from beginning to end,” he said. “Only by doing so, will China not be seized by the throat in the trade war if the US stops supplying certain goods.”