The 'extension' requires the cancellation of the existing RP
and the process must begin at least 7 days prior to the RP's date of expiration. The '30
day extension' begins the day that the passport is handed in, so that the actual
extension is no more than 23 days. A new 'visa' is added to the passport which merely
states the date that the holder must exit China.

Yes, I have seen this done a few times already. You may as well consider it as just losing your RP and being switched over to a standard 30-day tourist visa, or as Amused said, 23 days if they cancel from the time you hand in your passport.