By 1976, the Chinese government had seen the handwriting on the wall. They saw that China could not become a world power as long as its economy lay mired in communist poverty. Although the Soviet Union was a world power at the time, China saw that a failed economy could not long support military might.
And so China liberalized its economy, allowing free-market principles to generate wealth, not for the benefit of the people, but for the benefit of the ruling elite. It was just a necessary corollary that ordinary people prospered also.
China's bond portfolio is now between a rock and a hard place. The Chinese may be reluctant to buy any more US bonds, but if they refrain from buying, and drive up US interest rates as a result, the value of their current bond holdings will tank. They may try a bluff: threaten not to buy any more US bonds unless Obama introduces some free-market reforms. Communists teaching Obama about the benefits of the free market!