As an American of Chinese ancestry I find nothing racially demeaning in the lyrics to "Kung Foo Fighting" at all.
I actually think it might be a fun novelty tune to consider adding to my own act now.
I suspect the headline saying Simon Ledger was arrested for simply singing the song not the complete story,
and that there's more to this than merely singing the song. He might have added racially mocking jestures and speech.
Freedom of speech I suppose, but in a Chinese restaurant? If nothing else, he may have simply been arrested for public intoxication and disturbing the peace. The article headline seems more an attention grabber device than anything else.