I think the market is reading it wrong. What China is afraid of is scams, or "large risks to consumers", as it says in the Coin Telegraph article.
Actually, I think it is a good thing. Everybody knows the risks of investing in ICOs, in particular the risk of being scammed. On top of that, they haven't shut the door yet, they are "considering" it.
Still, it doesn't surprise me. Regulation is a keyword that everyone in crypto hates, so the market reacted accordingly. The reason behind this "regulation" is, in my opinion, a good thing.