"What will happen and when?"
Read my book!
But seriously, my guess is China wants to liquidate a substantial portion of their holdings without APPRECIATING their currency and without hurting their mercantilist trade surplus. I think they want to expand their internal consumer market to offset what they lose in America.
Unfortunately, a Treasury collapse triggered by let's say a Japanese liquidity crisis would send everyone rushing to the exits so they aren't left holding worthless paper. Then the Fed would have to monetize hundreds of billions in Treasury purchases in order to keep interest rates from exploding and triggering a depression, asset deflation, and bankrupting the government.
The Fed will be caught between saving the government (Treasuries) and saving the banks (the dollar). They will choose the banks but then the President will nationalize the Fed and redirect it to saving the government. Should be fun to watch.