According to the law, the following is true. However, as you know, the local policy in China could be different ... ...
1. You will not get penalty because your child is taken as Chinese citizen
2. After 旅行证 expires, when your child need to go abroad, you need to the 出入境管理处办理 出境证件, instead of using the old 旅行证.
3. Your child's U.S. passport will not get lost no matter China admits him as a Chinese citizen or not.