The premise is that everyone is already being surveilled in ways that Western three-letter agencies can only dream of, and that this Android app only makes this fact more obvious without making a significant contribution to the effectiveness of the surveillance regime as a whole.
It would be analogous to a big red icon on your home screen with Snowden's face on it. You already know everything he told the world about the American government's recent behavior. The icon is just a reminder that the country you live in does unethical things, and in the case of China, a helluva lot more unethical things.
Yes, it will have a chilling effect -- but only because the truth is chilling and this app reminds people of that truth. In America, a lot of what we say on these forums regarding our three-letter agencies is speculation. In China, pervasive surveillance and censorship is a reality, not just speculation. And I'm not sure whether it would be a good thing or a bad thing for the Chinese people to become more aware of this reality in their daily lives. I'm not saying this to pick an argument. I really don't know what to think of it.