Ok, so your overall point is that "Chinese now have dollars that buy 1/2 as much as the dollars they used to buy the treasuries". But isn't this due to inflatio

Ok, so your overall point is that "Chinese now have dollars that buy 1/2 as much as the dollars they used to buy the treasuries". But isn't this due to inflation and the dollar becoming devalued due to sub-prime disaster and overall global loss of faith in the US economy? Having the $3trillion in US gov securities is still good because it still shelters it from price fluctuations. So the cost of things made in China will still be cheap and US/Europe will still import them. If the $3 trill had been invested in harder assets as you suggests, the Chinese would have made a nice profit yes, but it doesnt safe-guard its import/export industry.