Why precisely is Harnad (or Searle) so convinced that the Chinese Room as a whole does not understand Chinese ?

Haven't read the Harnad paper yet, but the reason Searle's convinced seems obvious to me: he just doesn't take his own scenario seriously — seriously enough to really imagine it, rather than just treating it as a piece of absurd fantasy. In other words, he does what Dennett calls "mistaking a failure of imagination for an insight into necessity".

In The Mind's Eye, Dennett and Hofstadter give the Chinese Room scenario a much more serious fictional treatment, and show in great detail what elements of it trigger Searle's intuitions on the matter, as well as how to tweak those intuitions in various ways. Sadly but predictably, Searle has never (to my knowledge) responded to their dissection of his views.