The baby would have Chinese nationality legally, but the general population of China would never regard it as Chinese. In Western countries, we would regard the baby as Chinese as this is its country of birth.
Difference in mindset - basically, the Chinese aren't as stupid about this. They know that Chinese people lived in the same environment for thousands of years, and evolved based on the conditions in this environment. Hence, Chinese people are hence the product of thousands of years of these particular evolution chains. (Did English lessons part time while I was there and talked about a lot of this shit with them.) They are happy to get along with whites, but they know whites are different to them, even if one happens to be born in China.