It literally was started by Chinese people in China as an insult to Xi specifically. It isn’t racist, it isn’t applied to all Chinese people, it isn’t even “because Pooh is yellow.” People saying it is racist are just looking for a way to shut down criticisms of Xi, and crying “that’s racist” often bypasses people’s critical thinking abilities and makes them just capitulate because “well I don’t want to be seen as racist and I’m not the race in question so I don’t have the authority to decide if it is or isn’t.”

Could it be used in a racist way by some racist person who doesn’t understand the context? Sure. Does that mean “the act of making fun of a specific despotic dictator by using a children’s character he happens to resemble” is racist? No.