These lines are unhelpful and dreadfully misleading in this case. If savings always meant good investment, there'd nary be debt crises yet the history of capitalism is a history of debt crises. Saving is also not the same as spending because the person or group using the money has changed, the location has changed, the purchases have changed.
As for good and bad investment, let's take an absurdist example for fun and clarification. A savings bank lends individuals' savings to two farmers for their yearly crops.
Farmer A plants a 10,000 seeds of barley, and his neighbor Farmer B plants what are essentially small stones, 10,000 sterile seeds (perhaps he's been duped by someone or by his own misguided ideas into believing that they're fertile).
Both farmers will spend the same on labor, water, perhaps the same on the seeds, and so on, so the savings will be turned into spending as Hazlitt says, but their harvests will clearly be different.
Farmer A will reap a growth in total value, while the planter of sterile seeds -- Farmer B -- has created no new value despite having spent the savings lent by the bank, which he now must repay. Because of his bad investment he can't repay the bank and must sell his farm.
If it turns out that many other farmers also planted these sterile seeds and can't repay their loans (other people's savings) the bank will default and great harm will be done to the community (who, if this is an idealized small and local economy, must also deal with a reduced supply of grains).
Instead of farmers planting sterile seeds, in China you have local governments planting sterile infrastructure projects and borrowing heavily to do so. The debt on these and other projects is mounting at an alarming rate. Why are these sterile seeds being planted? Because the easy infrastructure investments have already been made, and there is little other means to create 6% GDP growth without either increasing exports (ahem) or increasing demand, in other words increasing consumer spending so that savings could be invested in the creation of products and services to be sold to households rather than in sterile infrastructure projects.
The best explainer of this stuff that I know of is Michael Pettis, who teaches finance at Peking University.
Here's a relevant article from his excellent blog:
http://carnegieendowment.org/chinafinancialmarkets/72997
EDIT: By the way, increasing household income is the best justification I've heard for Xi Jinping's extreme and otherwise frightening power grab, because a shift like that (increasing household income) requires going against mighty interests: local governments and the wealthy.