Last Point

One more point to tack onto this whole RMB up or down business and then I'm done. I promise.
It looks like I'm going to need to modify something I said earlier. In the last post (and the post before that) I was insisting that because imports into China were falling alongside that countries exports, there shouldn't be any major downward pressure on the value of the RMB (which in turn, shouldn't nullify the need for China to buy up Treasury bonds to prop up the dollar against the yuan--if that didn't make any sense, see the previous post).
Of course, like any good aspiring economist, when I say "there shouldn't be any major downward pressure on the value of the RMB," what I really mean is, "of course there's going to be some downward pressure on the RMB." If I can obsolve myself from any poor investment decisions you all may or may not have made, the downward pressure isn't coming from the shift in trade, but from a shift in capital flows:*

Readers may recall that a massive amount of money flowed into China, a good bit of it disguised (FDI was one of the suspect categories) because RMB appreciation looked to be a one-way trade. Given China's currency controls, there were limited options for playing that point of view from overseas, hence the funds influx. (Link-Naked Capitalism)

Translation: in the past few years, China's economy has been doing really well. In 2005 (I think), China abandoned its so-called "hard peg," in which it fixed its currency value at around 8ish:1US, allowing it to "float" a bit based on market forces. Because the economy was doing so well and China was exporting so much, the demand for RMB seemed to be, as the blogger above puts it, "a one-way trade." If the rate was 8.2:1 in 2006, $1 million invested in China buying you 8.2 million RMB might in 2007 be worth $1.2 million U.S. with a rate of 7:1 (these numbers are pulled directly from my ass; its just an illustration; they also exclude any potential profit from the hypothetical investment). So the logic went, based on the value of the RMB alone, foreign direct investment into China had nowhere to go but up. But, as the same blogger continues:

But now that China has quietly gone back to a hard peg to the dollar, the dreams of a quick profit have been dashed, and the hot money is making an exit. (NC)

I'd also point out that China probably isn't seen as the best investment environment at the moment, excluding currency values. P.S. I don't know what this term "hot money" is supposed to refer to, but it sounds sexual.
Terminology aside, the point is that the once googly-eyed investors who appreciated so well the Confusion industriousness of the Chinese people are packing it in as quickly as possible. Turning to Brad Setser:

The trade surplus should have produced a $115 billion increase in China’s foreign assets. FDI inflows and interest income should combine to produce another $30-40 billion. The fall in the reserve requirement should have added another $50-55 billion (if not more) to China’s reserves. Sum it up and China’s reserves would have increased by about $200 billion in the absence of hot money flows. Instead they went up by about $50 billion. That implies that money is now flowing out of China as fast as it flowed in during the first part of 2008.
...
And that may mute internal calls for China to prop up its exports with a depreciation. China presumably doesn’t want to create perception that the renminbi is a one way bet down after it was long considered a one-way bet up.(Link-Brad Setser)

Ignoring the accounting details, what this implies that the outward flow of foreign investment is all but wiping out the foreign reserves that China accumulated in December through its trade surplus (that is, by exporting more than it imported). While China was still running positive reserve growth last month (that is, its still getting more foreign currency than it is exchanging it back--demand for China's RMB is still higher), the upward pressure is mellowing. If this mellowing persists--and this gets to the heart of the previous post--the Chinese government may not necessarily feel the need to buy up American treasury notes (which it does to prop up the U.S. dollar against the Chinese currency). That's what the second paragraph above refers to. In writing that "China presumably doesn't want to create the perception that the renminbi is a one way bet down," Setser speculates that the Central Bank of China may want to calm foreign investors and lure them back by assuring them that the RMB is not going to continue to slide.
But maybe it doesn't matter. Setser's conclusion:

Over time, if hot money outflows subside, China’s reserve growth should converge to its current account surplus (plus net FDI inflows). That implies ongoing Treasury purchases – though not at the current pace – barring a shift back into “risk” assets. And if hot money outflows continue, watch for Hong Kong and Taiwan to buy more Treasuries. The money flowing out of China doesn’t just disappear … it has to go somewhere.(BS)

That is, if investors stop hemoraging out of China's eyeballs, we can all expect a return to almost normalcy: China keeps its dollar from rising too quickly by buying America's debt, "thought not at the current pace," and "barring a shift back into 'risk' assets"--meaning away from the safe haven of treasury bonds, should the financial world ever start to look better, and into riskier private assets.
On the other hand, if the bleeding doesn't clot, China may stop buying as many American T-Bills, but given the shape of their economy, they don't look to be major sellers anytime soon. Likewise, that money "has to go somewhere," that somewhere might very well be back Uncle Sam anyway. Much of Chinese FDI (foreign direct investment) comes from Hong Kong and Taiwan. Taiwan's financial markets are seriously underdeveloped and Hong Kong has been in tough economic straits since 1998. In short, investors in both countries want a blankie to hug and cry into and stuff with money as much as the next bankrupt hedge-fund manager. Queue the American Treasury Department.

*When anyone talks about the "capital account" of a country, he or she is referring to my "factor b" below: investments into and out of a country in either financial or real assets. This is distinguished from the "current account," which is primarily the net difference between the monetary value of exports and imports. The first is money exchanged for stuff, the second is money exchanged for the prospect of future money (profits, rents, dividends, etc).