It is not clear to me whether the Chinese family in the original post are US citizen or green card holders. If they are, they should not worry much about the competition from foreign students from China or elsewhere. Foreign students are put into separate category.

Even the family came here on work or student visa, their kids still have better chances to get into top schools than those applying from outside. The students from China still have the language barrier to overcome. It is getting better now, but most of them can barely speak or write (although the reading and analyzing grammar are much better). I was one of them 20 years ago as a graduate student. It was hard. I won't be able to survive in under-graduate where reading and writing are much more important.