China squirrels more than half of that [1997 Capital Surplus of $67 billion] away into foreign reserves which are invested abroad. Chinese companies funnel much of the rest directly overseas through bank transfers - sometimes skirting Chinese capital restrictions.
...
Usually, however, developing countries invest their capital in their own growing economies. And some Chinese officials believe that's what China should be doing, too. One former Chinese central bank official calls it "scandalous" that a country of poor peasants is financing investments of an industrialized power such as the United States."
Of course the President is correct. Too many here have bought into the "Bush is an idiot" mantra and failed to think first.
The President is not so clueless that he doesn't realize that the dollar glut in China is maintained centrally and that the workers and peasants are not sharing in that largesse.
Only a state-driven policy would keep accumulating foreign reserves when they already have plenty. Eventually they will need to do something with those dollars. At that point there will be an adjustment in trade.