Further to my original post, I found this interesting notice on the website of the Chinese embassy in Hanoi.
中国公民与越南公民的婚生子女加入 国籍、申领中国护照须知
It is only available in Chinese, but it lists the procedures on how to obtain Chinese nationality for children born to a Chinese and a Vietnamese parent, as in my case. It also confirms my understanding as mentioned in my original post, that due to the particularities in the Vietnamese Nationality Law, children born to a Vietnamese and a non-Vietnamese parent will not acquire Vietnamese Nationality automatically upon birth. The parents can choose the nationality for the child. However, it is also noted on the notice that if the parents choose Vietnamese nationality for the child, the child will not be entitled to Chinese nationality.
I guess the only remaining concern I have is would HK immigration department interpret things the same way as Chinese embassy in Hanoi? I know that the notice on Chinese embassy in Hanoi is directed more to Mainland residents instead of HK residents holding Chinese nationality, so I am not 100% sure if I can utilise the procedures on this notice and apply for Chinese nationality for my child with HK immigration department.