It is, because the term 'understanding' is not defined in a useful manner. What does it mean to understand something? If you can ever define it, I can bet I can make a machine satisfy your definition. What the argument does here is to simply avoid the definition, so that it cannot be disproved.
I take the Chinese Room to be a reaction to the Turing Test. The Turing Test also avoids defining understanding but it seems to say that we don't need a definition of understanding - if something appears to understand then it does in fact understand.
The Chinese Room attempts to refute that idea by saying that you can get the effect of understanding with a methodology that obviously lacks the gestalt that we associate with understanding a subject.
Personally I'm a sketptic of hard A.I. in general. Conscious to me seems like a magic trick - in that the only magical thing about it is that it will disappear once you know how it's done. Which makes it seem like a black box that can only be created if you don't know how or what you're doing.
