In all honesty, what did you expect? This isn't even a black and white issue... you can't have expected a chorus of "I agree!" and then a graceful decline.
I suppose it should be defined more clearly. Are these children considered employees? Are they on the payroll? If not then I do not think they can be considered working there. Now do I consider answering the phone work? No. Do I think that by walking through the kitchen near dangerous equipment is considered work? No. No one claimed they were back there frying up the food. They are simply hanging out with their family and learning the business a little. I think that these are their children. And I think it's great that they want them around. They can learn a skill/trade. And they can spend time with their family. Could you take that as trying to be cheap and not wanting to pay for day care? Yes. But it's their choice. That chinese place has been there a while, and the kids are still alive and well. So who cares, and why does it matter. Go find someone beating their child in their own home, or being mistreated in a daycare. This is not the worst or at the least a bad environment for those kids.
Honestly, it is definitely a case of MYOB in this instance. Seriously. I worked on my Grandmother's dairy farm, worked in my parents convenience store, made food in the deli including using a grill well before I was 18. Big whoop. They will survive and hopefully learn a thing or two in the process.