Hi Paul, being that I have been through a similiar instance that you have been through my advice for you would be to consult with a person who is an expert in the law here in China. It's obvious that these people are taking the offensive against you so as to protect their reputation. However as long as you have evidence on your side you shouldn't be afraid.

Whichever country you are from, you should contact the consulate of your native country here in China and ask them for consultation. If they provide you with a lawyer or recommend one for you it's probably in your best interest to take their advice as they would know. However you should certainly have some money prepared as this is a case which may take some time.

Schools usually back off when you have a lawyer. In fact you should consult with your lawyer if you can counter-sue them for libel since you didn't lie, right? As long as you have evidence, again that's the key. You might also want to contact media (news stations?) in your native country and tell them about your experience here in China and to avoid these kinds of schools. Make sure you name the employer, too. Good luck.