My wife is from China she has a two-year green card and will be applying for change of conditions soon. Her brother died in 2005 he had a son who is living in China with his mother my wife would like to bring him here so that he could get an education and live here, the mother would have no problem with this. Is this a possibility?

I would think that you would need to legally adopt him. I'm not sure whether that's a possibility. I would consult with an immigration attorney that specializes in adoption.

No, unfortunately she can't. A legal permanent resident can only file for his/her spouse and unmarried children. A US citizen can file for his/her spouse, parents, children and siblings. Any other relative does not qualify.