This is the joke and it is a visual joke. It is also a requirement to sing it in a pseudo-Asian style of music and sing it in an annoying high-pitch voice.
Chi-i-nese - "eyes slanted up using your fingers"
Jap-a-nese - "eyes slanted down doing the same"
Dir-ty Knees - "slapping your knees with your hands"
Look-at-these - "pulling your shirt out with your fingers, making you appear that you have a big set of boobies."
https://www.patheos.com/blogs/whatshesaid/2012/02/dirty-knees-look-at-these/
the problem is white people are deciding what is racist, and it is not up to them to decide, as stated by Jerry Afriyie, one of the founders of the Dutch anti-racist organisation Kick Out Black Pete.