Sherwes - I`m sorry, but I didn`t actually have my baby then... I guess I should have thought about that before I posted the suggestion. However, I was about 5 months pregnant and that with a perpetually lazy husband, didn`t make us very intrepid travellers there. The only ambitious part was our hotel, which was a good 15 min walk from Yangshuo town.
What we did was tour around Guilin first. It`s a small and LOVELY Chinese town - very manageable with kids because it`s like a regular town - not too big, normal streets, riverside, large parks, etc. We stayed in a hostel then, actually, so not so family-friendly, I`m afraid.
Yangshuo town is much smaller, older and less convenient, due to the older streets and condition, from what I remember. but it`s also really tourist friendly and very very nice. The place we stayed at was called the Li River Retreat Hotel (something like that), but like I said, It was a bit of a trek from the town. There were other more centrally located hotels. I was disappointed that we couldn`t bike around, but we just walked around the town, took a boat trip on the Li River (what everyone pretty much goes there for) and had some nice food. It`s really laid back. I`m not sure how it would go with 2 young kids - depends on how intrepid you and your hubbie are. It might be tiring, but then again, it`s only a long weekend or so, right? It`s truly a stunning place and it might also be nice for them to see something completely different from here in HK.
I think that since Guilin and Yangshuo are so touristy that all kinds of travelers and budgets would be accomodated.