Isn't it just an abbreviation for a race of people? I don't use the term to be fair but is it any worse than calling Jewish people Jews for instance.
I suppose for some people it might be. It's the negative connotations that come with a word. For example 'nigger' is only a word when viewed in isolation, but it's the weight of history attached to the word and the ways in which a word has been used to oppress people that give it it's 'power', and the same with 'chink' and 'paki' (although they have their own distinct historical connotations, separate from slavery etc).
One very quick test for the acceptability of a word for people who are confused or unsure as to which words are acceptable (I know it's not always completely clear as words change meaning and levels of acceptability) is this. Would you feel completely happy and comfortable walking into a group of people you are referring to (in this instance Chinese people or people of Chinese origin) and referring to them as 'chinks' to their faces, or is it only something you might say to other non-Chinese people in private circumstances? If you wouldn't do that, there's a very good chance that the word is offensive and has historical negative connotations, which involve the word being used as a demeaning racial epithet.
EDIT: That test is not fool proof because it relies on the person carrying it out having a reasonable amount of awareness of the world around them, and awareness of what is acceptable behaviour towards different groups in society.