Term originates from MMORPGs. Used to describe a player who will do anything repeatedly in a MMORPG to make in game currency. This usually is done by killing a specific target repeatedly to nauseam.
The "Chinese" reference exists because, generally, this "Farming" of items is done by people of Asian decent.
Most players do not find this tactic to be terribly annoying unless it directly affects them. This is usually the case when a player must kill a monster for a quest or item that the "Chinese Farmer" is farming.
In these instances, the "Chinese Farmer" will go through a standard repitore of griefing. Tactics include reporting "Kill Stealing" to "Game Masters", "Training" other monsters onto the player, and/or using or threatning "hacks" on that player.
These "Chinese Farmers" usually sell the items or gold they aquire to other players via eBay, IGE, or Paypal. There are some "Farmers" that are said to make more than the U.S. minimum wage using this method.
I can't get my Robe of Eliteness because some Chinese Farmer is camping the Monster of RobeDropping.