While it’s obvious that the person using the manual does not understand Chinese, they themself is not is the “System” the outsider is interacting with. The Mandarin speaker outside is communicating the room as a whole — including both the manual and the person using the manual. To argue that there is no “understanding on Chinese” in this system is only valid when “understanding” is taken in its narrow sense that requires consciousness. However, the part of human brain responsible for language processing is not conscious, and it’s absurd to say that the brain as a whole does not understand a language just because of that.