I think that this story was told to the soldiers in the Chinese SOF community to give them a morale boost. If they believe that they defeated a possible enemy with a very good reputation then they will have very high pride in their unit and will be confident, which is a good thing. I would even go as far as to say that this story came from the commanding officers in whatever unit it originated in.
I doubt it. One has to have pretty good mental, besides physical, capability to be in the elite force. I tend to estimate that any one with an IQ level of a college student has very good odds of dismissing this story as pure rumors. I just can't imagine any officers would give them a story that's impossible to believe. The best stories to tell as morale boosters will be true stories with some exagerations.