I agree, it's not clear exactly what the purpose of this statement is. Maybe it's simply to remind everyone that China is not our ally, and is, in fact, a behind-the-scenes enemy. Maybe she's saying that China, rather than Iraq, is the prime state sponsor of terrorism (she apparently opposes war with Iraq). Maybe she's warning us that we'd better be careful in war with Iraq and Islamic extremism, on the theory that we're really taking on China.
I don't know. What do you think?