This will have no negative effect on Crypto market. Even if story was true, I doubt the Chinese government will let other Cryptocurrencies compete with it in the country. They could even go as far as banning other Cryptocurrencies and making this the national cryptocurrency.
No government is capable of banning cryptocurrencies due to the decentralized nature. In the early days of crypto there were attempts similar to what you say but none of them ever worked.
All kinds of cryptocurrencies are already circulating at large volume in the country.