Racist joke at work?

So there’s a new(ish) guy sitting next to me at work now and he’s chatting to my (female) colleague sitting to his other side. I wasn’t really listening in on their conversation – they were joking and giggling until I over heard the female colleague say a “joke” which was about Chinese people. I didn’t really hear her properly but I didn’t feel comfortable. They giggled for a second and then the guy colleague follows up with his own “Chinese joke”. This was really awkward for me. I didn’t find it funny. I was actually shocked that they found it funny. I think they were conscious of the fact I might hear them so he quickly retracted “yeah that’s a terrible joke”. They weren’t speaking to me but the fact that I heard it and they thought it was funny made me angry actually. I’m not happy about this experience. If they say anymore jokes like that I will speak up as it’s not really acceptable for racist jokes to be at a work place.