China is an authoritarian regime where everything, including the citizenship assignments, depends on the will of the government. If the government decides the players shall have Chinese citizenship, they are going to have it. Laws regarding dual citizenship are irrelevant in such cases. The ruler says - it happens, it is simple like that.
I believe they will bring in a roster which will be not much worse than, say, Italy, France, Slovenia, countries like these. Of course the majority of players will be foreigners perhaps with some Chinese grandfather/grandmother, but as far as I remember Torino 2006, the team Italy was a very similar case back then. Are they going to get smashed in the games? Probably yes, perhaps even with double digit scores, but as long as it is, say, 12-2 and not 24-0, they should let them play. I also remember team Japan competing at the World Championships some two decades ago, results like 11-0, 10-1 and similar were common, and it did not spoil the tournaments. There was simply one "exotic" team, teams like that do appear at the soccer World Cup too, at least time to time. If they were not able to bring in a decent roster I would agree they should be replaced by Norway to avoid scores reminding of the 1930s, when Canada was regularly beating other teams 27-0 and similar. But I believe they will bring a bunch of guys who will be losing but not completely humiliating way.