Yeah, you could get one in Mainland China if needed. I did a renewal by applying to HK and having the new one sent to China and I'd presume for emergency passports, there's similar procedures, even if the emergency passport itself, is sent from HK or even the U.K. Either way, it's an issue regarding his passport, a British passport and the Chinese authorities don't take to kindly to companies who cause disputes with foreign diplomatic missions.

I'd report the passport as lost, his original passport will be cancelled, he'll probably be able to get out of the country with his new passport and the school will left with nothing but what would now be a useless booklet.