Bubble carries an often-negative connotation that anyone or anything inside the bubble is unnaturally or dangerously isolated from the world, and often the additional sense that this isolation is delusional or imperiled, or both.
In contrast, a person has multiple circles. I might not be admitted to one circle or another, but there are others; I am not confined to one. Even if I say my inner circle are all Ivy Leaguers, it means my closest friends or colleagues are graduates or faculty of Ivy League universities, but it does not mean I do not associate with people who are not. If I say my bubble are all Ivy Leaguers, on the other hand, it implies I associate exclusively with such people, or that I disregard my association with people who are not.
It is certainly possible in Los Angeles to spend weeks at a time exclusively among ethnic Chinese people, speaking only Mandarin, eating Chinese foods, consuming Chinese media, and so forth. If Lily is living in a "Chinese bubble" in Los Angeles, it means that her experiences are mostly or entirely Chinese in this way.
There is no implicit criticism that this is a bad way to live because it is Chinese—a Danish bubble or a Brazilian bubble or an Australian bubble would be equally limiting. The sentence is rather praising her for leaving her familiar, comfortable existence to experience new things, for taking advantage of the opportunities for cultural expansion that are afforded to international students.
The earliest sense of bubble is of a volume of gas or liquid present inside another gas or liquid, separated by a thin membrane. This gave rise in the 20th century to describe thin-walled structures which held their shape without bracing, for instance buildings supported by pressurized air (e.g. tennis bubble), or the canopy of the Lincoln Futura concept car. In turn, bubble came to be the popular term for a sterile chamber around a hospital bed created with plastic sheeting. The OED's earliest attestation is from the New York Times, October 5, 1966.
A few years later, this sense of bubble was amplified with the celebrity case of David Vetter, who was born with a severe immune disorder and forced to live permanently inside such a sterile chamber. The news media termed him the "Bubble Boy" and his case and that of Ted DeVita and others inspired a 1976 television movie starring John Travolta called The Boy in the Plastic Bubble, all of which solidified the meaning of a bubble as an environment in which someone lives in isolation from the world.
The recent rise in the concern about life in a bubble stems from various observations about the decline of social cohesion in Western societies, brought on by different villains depending on your political point of view: social media, 24-hour news, wealth inequality, mass immigration, Russian trolls, and so on and so forth. Different sectors of society disagree about whether a phenomenon is a problem or not, much less over how to solve them, and pick and choose the sources of authority and information to suit their ideological predispositions, and even sort into parts of the country where people are more agreeable to their point of view. Then, when confronted with people who do not share the same ideas, they are shaken and disturbed.
In particular, the 2016 Brexit vote came as an incredible shock to the British (and European) establishment, followed shortly by the at least equally shocking election of Donald Trump. This led to considerable concern about the elite bubble of highly educated, upper-middle and upper income, and politically centrist elites in the news media, public policy, corporate management, academia, and so forth who associate mainly with people who are just like themselves and who consume the same culture.
You can find the sense of bubble as living in self-reinforcing isolation from the real world now in Merriam-Webster in relating to political opinions:
an enclosed or isolated sphere of experience or activity in which the like-minded members of a homogeneous community support and reinforce their shared opinions