>Quoting Searle himself, "The point of the argument is this: if the man in the room does not understand Chinese on the basis of implementing the appropriate program for understanding Chinese then neither does any other digital computer solely on that basis because no computer, qua computer, has anything the man does not have."
> I think the most succinct description of his error is substituting the (lack of) understanding of a part of the system (the man) for the understanding of the entire system (the rules and file cabinets, etc.). But I'm interested in learning that I'm mistaken.
As you know, there have been many replies to this thought experiment, and some of the most interesting ones (to me) go in the direction you went here, ie, where is "understanding" occuring? The most basic version of the Chinese Room does intend to make you see yourself literally as a man who does not understand any Chinese and is just asked to look up symbols in a list. Perhaps that man doesn't understand Chinese, but the room as a whole at least gives the impression that it does.
However, I think the most important aspect is not this "intuition pump" as Daniel Dennett calls it. To me, what is key here is that we can all agree that such a Chinese Room, or ChatGPT for that matter, does not necessarily replicate the fundamental mechanisms of human cognition. Then, it follows that other human properties such as awareness or qualia do not necessarily emerge from such cognitive architectures in the same way that it emerges from our brains.
To me, Searle's point is ultimately that we don't know enough about the human mind to be able to judge whether it can be replicated artificially. And now that we have almost literally developed a Chinese Room, we can see that clearly. The arguments you bring up in your last paragraph are a great example of that, it's just very hard to conceive that this thing is conscious at all, even though it is capable of producing output that could convince people of that.
Regarding Searle's quote that you brought up, I think "solely on that basis" is doing a lot of heavy lifting there, but it does align with what I said previously. He is saying that simply producing intelligent output, like in 1974 translation would represent, does not mean you are reasoning in a human way.