I haven't tried very hard, but didn't immediately find any other sites with this news that weren't simply linking to or regurgitating this article. Losing or winning a contract this size is something you'd expect a lot of well known news sites to cover.
http://www.pcauthority.com.au/Author/146235,nebojsa-novakovi...
http://en.wikipedia.org/wiki/Loongson
I guess they've gotten to the point where they want to push this CPU onto their school children with their Red Flag Linux distro.
I suspect there's more to the story other than "herp derp nvidia is stupidz!!" Open sourcing their drivers may open them to liablity or patent issues and/or give AMD a nice look into the nvidia internals. For all the grief AMD gets at least they opened their specs and allowed a community driver. The problem is that the OSS advocates want their cake and to eat it too. They don't want to develop all the hard 3D stuff, potentially get in patent issues, empower the competition, etc but expect NVIDIA to do this for them.
3D is a patent minefield. All the more reason to encourage patent reform.
This concept of "losing face" may seem like just a small word or minor loss of reputation to Westerners, but in a sense is more important in China (and to varying extent all over the Far East) than even money.
If the story is true, and the depth of detail leads me to believe it is very likely, then the reputational damage to Nvidia would be high and, more importantly, entrenched (an aspect of face that makes it different from mere temporary reputational loss) due the public service, government angle and the size of the proposal.
Assuming that this story is true (since it's based off "Rumors out of Beijing").