Here's an outline:
1. The expanded US spending requires someone to give the government dollars now in exchange for a promise by the government to pay them even more dollars in the future.
2. If enough people aren't willing to buy US Treasuries, then Treasury auctions will fail and the US government will run short of funds. The result could run from the mild (government needs to scale back spending plans a bit, or shift the maturity or return on their debt issues) to the extreme (perception of future inability to raise enough debt to pay off current debt leads to fears of a default, widespread selling of Treasuries, and a collapse in both the Dollar and the ability of the US government to fund even basic expenditures this year).
3. Aside from being the single largest purchaser of US Treasuries, China is also the single largest holder. They're a bit stuck between a rock and a hard place--stop risking more dollars on US debt and the value of their existing holdings may plummet, but keep buying it and they increase their exposure to dollars that may plummet in value regardless.
4. China also recognizes that it has a huge thirst for natural resources of all types, and that it will need to secure future supplies if it (here, the Chinese Communist Party) is to continue to deliver standard of living improvements to its citizens--the tacit trade-off the Communist Party makes for civil order.
5. One solution: keep supporting the US Treasury issues while spending as large a share of foreign currency reserves as possible on locking up large supplies of natural resources around the world. If the "West" permits this, then China will keep supporting the dollar regime as long as the dollars it already has can be used to buy "real" assets. If the West balks, then let one or two treasury auctions fail and see if their position changes. If not, then all those dollars China has in existing Treasury holdings aren't worth anything anyway, so there's no point in throwing good export revenues after bad future promises.
This appears to be exactly what China is doing. While there was stiff resistance to an earlier attempt to acquire UNOCAL (something the Chinese covet for its Burmese resource holdings), China seems to be trying again, first with attempts to acquire a larger share of Rio Tinto and OZ Minerals (the latter has already been blocked by the Australian government).
What will China target next? My guess is that there will be a concerted acquisition spree this Spring. If China targets outright ownership of various reserves through purchasing resources companies or exploration rights, especially in regions where China has greater ability to exert (present or future) military control, or where governments can be easily swayed to support Chinese rights, then that supports the argument that China is taking a mercantilist approach. South East Asia, Papua New Guinea, Indonesia, many African nations, and parts of South America (Venezuela, for example) are likely early targets.
Of course, even if the West permits these critical resources to be acquired by China through peaceful purchases, this only extends the debt-spending period for as long as China can still purchase attractive resources. At some point it is likely that 1) prime acquisition targets run out, or 2) the West catches on to this game and calls China's financing bluff. It's a bit like the advice given by Jon Voigt's character in "National Treasure": the US government's budget will remain intact as long as the status quo remains unchanged. As soon as China can't get anything of real value (in its perception) for its dollars, it no longer has any reason to support the dollar regime by diverting a significant portion of its economic product into Treasury holdings.
Something to keep an eye on over the next few months...