I read this a bit more simply: the Chinese are not buying now because the (current short-term) price is too high, and buying more would drive it up further. As for their statement that China is planning to rely on domestic production: no hint of truth there. They are buying leases in Canada, bidding for Unocal, sending drilling crews to Wyoming. And that's before the military jumps in:

From the San Francisco Chronicle, 11 September: "In a muscular display of its rising military and economic might, China deployed a fleet of five warships on Friday near a gas field in the East China Sea, a potentially resource-rich area that is disputed by China and Japan.

The ships, including a guided-missile destroyer, were spotted by a Japanese military patrol plane near the Chunxiao gas field, according to Japan's Maritime Self-Defense Forces. It is believed to be the first time that Chinese warships have been seen in that area.

Although the fleet's mission was unclear, the timing suggested that it was no coincidence. The warships appeared two days before a general election in Japan, whose results could greatly influence relations between Asia's two great powers, and weeks before China is scheduled to start producing gas in the area, despite strong Japanese protests."

The Chinese hold over $700 billion in US Treasury bills. They can buy anything they want. They are simply holding off until it's a bit more opportune. I wouldn't fill my SPR in the aftermath of Katrina, either. Would you?