Wot Stil and BrandX both said.
(Yet) Another story. If it's too long for you, skip to the end:
A few years ago I went over to the FAO office to ask some question of our FAO liaison (let's call her Xiaobao because some of you might know her). Walking into the office, I encountered Xiaobao's assistant working on the computer and an older (around 59 year old) short, fat man lounging on the couch. Some kind of administrator as I was on the administration floor of the school. It was shortly after lunch break.
I walked in, ignoring the guy, who appeared to be trying to schmooze the youngie, and asked the assistant (whose English is weak), "Xiaobao zai ma? ("Is Xiaobao here?")
One of those useless questions you ask in Chinese when you know what the answer is.
"Bu zai!" the assistant answered.
"Shenme shihou hui lai?" (When will she be back?) I asked.
"Yi huar," she replied. (In awhile.)
Suddenly, lounging man sat up, ignoring me, and said to the assistant, "Wah! Neige laowai hui shuo zhongwen!"
The assistant knew I hated hearing that word, "Laowai!" and she cringed.
I turned to the old man, and said, "Ni shi shui?" (Who are you?) And without waiting for an answer, I continued "Wo shi waijiao!" (I'm a foreign teacher!)
Then I looked him directly face-to-face. For some reason I can't explain, but later saved my ass, I decided to address him condescendingly in English "You are stupid!" Then I walked out.
An hour later, back in my apartment, I received a call from Xiaobao. "You came to see me today. Sorry I wasn't there. Did you call my boss "stupid?"
"You're what?" I asked.
"My boss." she said.
To shorten the already long story, it turns out that the old man was in fact the official FAO of the school on paper, and Xiaobao's boss and had been recently transferred to that cadre position from another school just prior to his retirement. All of our FT interactions had always been through Xiaobao. Oh, and despite being the putative head of the school FAO, he spoke no English.
Except he understood the word, "Stupid".
Which I had called him.
"Yes," I told Xiaobao. "I called him stupid. He called me 'laowai'" She knew my feelings on that term.
I continued, "If he really is the school FAO, that's even less excuse for calling me 'laowai'. He knows I am a waijiao then."
"I understand," said Xiaobao, "but it's going to be big trouble for you. I'll try to talk to him."
A half-hour later I got a call from the Dean of the Foreign Languages. Like Xiaobao, the asst. FAO, I got along well with him. We basically had the same conversation. He was more ominous though, "This guy wants you fired immediately."
I think part of it was I got in his face while he was trying to schmooze the young assistant while Xiaobao was out of the office, and he lost some face when the laowai got in his face. Nevertheless, my two good friends in admin-Xiaobao and the Dean-both were very worried about my future.
It was escalated up to the school VP of Academic Affairs to decide. The old man insisting that I be fired immediately. The Dean and Xiaobao vouching for my work-ethic and student ratings, etc. Both agreeing that this FAO was clueless as an FAO and been sent here to this Institute's cadre's last resting place program before retirement.
I insisted to both the Dean and Xiaobao that I be given the chance to state my case to the academic VP who, according to them, had already decided she had to terminate me under the rules of cadre-ship. One elderly cadre will back up another. They both said it would be hard to do, but still I insisted. I liked the school, and done a lot for them, and I liked the students. "Give me a chance to talk to the VP."
"Her English isn't very good," said Xiaobao.
"That's OK, you can translate."
They were able to get me an audience with the VP. Xiaobao was really nervous. When I walked in and met the VP, she was a woman also almost close to retirement. She handed me her card, and told me her Chinese given name was something like "Stalin's Star." No doubt she had been a Red Guard in her academic years.
OK, if you've read this far, here's the payoff on this topic.
We sat down and she accused me of the crime I had committed against a Senior leader of the school. I had called him "Stupid" and he understood it. She understood it.
In the simplest English I could muster (the VP could understand a modicum of English) and with Xiaobao translating the rest (though we hadn't pre-prepared this), I explained thusly: [cut-and-paste the below for future reference]
_____________________________________________________________________________________________
I am a foreigner and I came to China to help improve students' English. You hired me as a Foreign Expert to do so. In western culture, people don't being called old (Lao). I've been here for a few years already but I'm still considered "way" outsider. So "laowai" is very offensive to most foreigners who have come to China.
I know that many Chnese will simply say, "Oh, laowai isn't meant to be offensive. It's just what we call you." But, in fact if you could be us for just one day and walk around the city and constantly hear, "Laowai!" everywhere we appear, it would be very annoying to you. Yesterday, some old guy, who I now know is supposed to be the official FAO of this school, referred to me as "laowai" when he knows I am a "waijiao". It's very offensive, and mores now that I know he is the official FAO.
The VP responded with, "Well, I have read the reports and everyone says you are a good teacher. But you called an administrator "stupid to his face, so you must apologize."
"I called him stupid. I said it in English," I explained to her.
Surprisingly, it's one of the few English words he knows. He was offended. To be honest, Ms. VP, in English, the word "Stupid is not as bad as when it's translated into Chinese. I can address my good friends as, "Stupid" and even myself, "Oh, old34, you were so stupid to have done that." None would be very offended because, well, stupid is just stupid. Somewhat benign.
But if you take the raw English word "stupid" and translate it into Chinese in various ways, it is highly offensive. (bendan, erbaiwu, dhabi, shagua, 62 (in hangzhou hua), etc.) That's why he was offended.
Then I paused to let Xiaobao deliver this content.
"In the end," Ms. VP, "it's the LISTENER or receiver of the term who decides if it is negative, not the intent of the speaker."
"I didn't like being called laowai, even though many claim it's not derogatory. He didn't like being called 'stupid' even though most native English speakers would consider it mildly-at best-derogatory. Though when translated to Chinese it's highly derogatory.
Again: It's the LISTENER or RECIEVER who determines if it's offensive. And if you know it is offensive to them, don't use it.
"So what should we do," asked the VP of me. "Everyone else wants you to stay. What can we do?"
"Let me stay," I answered.
"Are you willing to apologize to Mr. Z for what you said?" she asked.
"Of course," I answered, "because I offended him as the listener. But I expect an apology from him for calling me, a waijiao in his department, for calling me "laowai", which offended me as a listener."
I was not fired, my contract was renewed with a bonus, and that was the end of it.
A few years later (after I moved on), Xiaobao is now the head of the FAO at that school.