Hi, Mic!
Laowai does not mean anything bad in a friendly way, if people were smiling. I don't think you saw anyone hold up his fist while saying. I suggested that you hold up your thumb. Most Chinese might not feel offended if you called them 'Chinaman', but as you knew, Chinaman has not been a 'friendly' way to name the Chinese, why you use it anyway?
If you don't feel like talking to them, just say nothing but a smile will do. Otherwise, you'll find lost of the Chinese you meet would like to brag something with you.