When I watched the cartoon, I thought it was odd that they didn't pronounce it that way /shrug
Guess he thought he was "fixing" it, just like how he thought it was appropriate to make the Wind people mixed races because they were nomads.
I don't think he deliberately tried to "fix" the races. He understood that the Water Tribe was Native American (although his daughter thought Katara was the brown kind of Indian, like her), the Fire Nation was Japanese, and the Earth Kingdom was Chinese.
But then he went to the casting agency that delivered Haley Joel Osment to him and asked for some multi-ethnic kids, and they gave him a bunch of white kids (he didn't know that there are specialist agencies you need to go to for ethnics).
He cast a minor white celebrity as Zuko (because he thought Zuko was an important role), and came up with the "mixed" excuse for Aang. Then he cast his second-choice Katara and Sokka as Chinese, because he knew he couldn't fit that many white people in his movie, and decided to cross the Earth Kingdom bridge when he got to it.
Then his white Zuko bailed on the production and he found Dev Patel to replace him, and instead of using this as an opportunity to diversify the cast, he thought he could afford to bring his first-choice white Katara and Sokka back into the mix and move the Chinese people over to the Earth Kingdom. The fix for one problem allowed him to solve two more problems.
He didn't realize that in the context of his one and only TLA movie, he had just made all the good guys white and made the "bad guy" his own shade of brown, making himself look like a self-hating racist.
Edit: Those Earth Kingdom guys wearing green and dancing the rock through the air were once meant to be wearing blue and guarding Princess Penis-Head. Neither fate is an upgrade.