People often confuse ethnicity and nationality - you need to be more concrete with your example.
Two Caucasians (ethnicity) who are US citizens living in China gives birth to a baby in China, then the baby would be Caucasian (ethnicity), and American (nationality, by US law), but probably also Chinese (nationality, by Chinese law[1]).
Maybe that example is not so great because the baby would have dual-citizenship, so consider a different example:
3rd generation Chinese immigrants in the US who are born in America, never left the US to visit China (same as their parents), it is their grand parents who migrated from China. These 3rd generation immigrations are Chinese (ethnicity) and US citizens (nationality), also called Chinese-Americans (format: [ethnicity]-[nationality])[2]. These Chinese-Americans are not citizens of China, but they are ethnic Chinese.
Hope that clears up that one small point.
[1] Most countries have a 'if you're born here, you get our citizenship automatically' (I'm not sure about China specifically, just using it as an example).
[2] easy to mix up and confuse, but order matters here