there are some things supercomputers can do well, but the same effect can be reached with distributed computing, which, in addition, makes the individual CPUs useful for a range of other things. Basically, building supercomputers is pretty stupid and a waste of money, time and effort.
That's a bit of an overstatement. There are plenty of simulations that really do benefit from a monolithic supercomputer rather than a distributed system, such as protein dynamics, global climate, etc. And the level of detail which can be attained (without approximations which diminish accuracy) increases with the size of computer.
I do think however that it's reasonable to question what the real-world impact of such systems is, and whether there are better approaches. My field is life sciences, where the applications are indeed limited. In the molecular dynamics field, for instance, specialized hardware is potentially superior for both performance and efficiency (although this has some tradeoffs too). For genomics a supercomputer is completely unnecessary, and cloud computing is quite adequate. Ditto for most other analyses of experimental data, protein design, and so on.
Furthermore, the economic impact of supercomputer simulations tends to be greatly overstated. A common example is studies of drug binding to proteins - supercomputer centers love to put out press releases about how "new simulations tell us how to cure cancer/AIDS/Alzheimer's". But anyone familiar with pharmaceutical development will tell you that lack of supercomputers is by far the least of the problems faced by the field. Simulations aren't a magical substitute for actual benchwork, unfortunately - and clinical studies are vastly more expensive than supercomputers.
The main reason why having the biggest supercomputer is a status symbol is that it's traditionally tied to nuclear weapons research, and therefore the importance to the country in general is inflated by the politicians, the media, and of course the people who build and use supercomputers. A secondary reason is that it indicates the overall level of technical competence of a country, although as noted China is still using Intel CPUs. (This is not a trend specific to supercomputing; the Beijing Genomics Institute famously uses equipment entirely designed and built in the US and UK for sequencing.)