personally
i cant see anything wrong with kids training in martial arts, in boxing, kickboxing, wrestling and muai thai kids start fighting at the age of 5, but there is no punching or kicking to the head and it is on a semi contact basis.
i started martial arts at the age of 6. had fights all then time, ref and medical staff at every event. never been hurt, i have seen worse things on a football pitch.
what is wrong though is the adults. they should be shouting encouragement not shouting for blood, thats what makes it look worse than it is.