China definitely go through this scenario many times so China will not just let it happen. The best scenario is as you said, his sister take over, everything is still peace and stable. The second best is China and South Korea (maybe USA and Russia together) involved into NK internal political battle without blood, finally a new government recognized by all parties founded with one more step to democracy and unification. The worst scenario is the proxy war happen. China will not allow US army near its border, NK is a perfect buffer zone right now, once this balance break the war will begin.
China and South Korea are pretty calm right now so I think Kim's probably still recoverable or prepared for peaceful power take-over. Neither USA or China would rather see a unified Korea ( cruel but true), Neither one will play fool to start a proxy war I guess/hope.