Is the Alei Lounge Club still going? I haven't been there in quite a while, but I've seen jazz bands there in the past...(on the walking street near the corner of Renmin and Zhengyi - the place with a fish tank in the wall with a shark in it)
A similar event occurred here early last year near the corner of Chuncheng and Baita Lu. On that occasion, on-lookers were just concerned and a fireman talked the person down, from what I could gather.
In my experience, it depends on the embassy or consulate staff. They may not require hotel bookings for all of your time in China, especially if you are travelling to several different places. However, you should at least have a booking for the first couple of nights.
You can book on a website that offers free cancellations, then once you have your visa you are free to cancel the bookings and go on your merry way.