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Culture War Roundup for the week of September 2, 2024

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Well, it goes like this (I've added numbers to label the 3 conjuncts)

If one or both of the parents are Chinese citizens and the individual is born in a foreign country, he or she shall have Chinese nationality; however, if (1) one or both of the parents are Chinese citizens and (2) resides in a foreign country and (3) the individual has foreign nationality at birth, he or she shall not have Chinese nationality.

There's no reference to "permanent residence", as I suppose that's a concept that's only meaningful in some countries, like the US. In your scenario, I would imagine that her being a resident alien is enough to satisfy (2), so it shouldn't create a conflict situation.

It's also worth noting that clause 3 explicitly rules out dual nationality ("The PRC does not recognize dual nationality for Chinese citizens.").

I see this ongoing discussion throughout this thread. And I understand that rules as written dual citizenship is illegal in China. No one is wrong here.

But, the Chinese government doesn't follow their own laws. For example Eileen Gu is a natural born US citizen. There's no record of her ever renouncing her US citizenship. But she wants to compete for China in the Olympics, so now suddenly she is also a Chinese citizen with a Chinese passport. Good to go for the Olympics.

Although she was born and raised in San Francisco, Gu competes for her mother's native China. To do so, the International Olympic Committee requires that she hold Chinese citizenship. But in spite of China's ban on dual citizenship there is no government record of her renouncing her American citizenship.

Rules apply until they don't. A piece of paper with Chinese writing on it somewhere says this is impossible. That's no impediment.

There's no reference to "permanent residence"

I believe you're mistaken. It uses the phrase "resides in a foreign country" in the conjunction. If you have translated this faithfully, and if the legal interpretation doesn't invalidate this meaning, residence in a legal sense is what is meant here. It is not the mere fact of living in a place. It is being settled there.

Whether or not being a student or a diplomat means that you "reside" in the foreign country is a question I'll leave to lawyers, but the paper I linked seems to be of the negative opinion.

The PRC does not recognize dual nationality for Chinese citizens

Not recognizing something just means that it's legally inconsequential, not that it is forbidden or incompatible with other things. In China, much as in a lot of other States, Chinese nationals can't claim they are something else. Even if they have another passport.