Domestic transfer, can I use the free transit?

I had a flight from Okinawa to Beijing, which included a 2-hour layover in Shanghai. I then had a flight scheduled 2 days later from Beijing back to the United States. Total time in PRC starting from the arrival in Shanghai for the transfer was under 72 hours so I had intended to use the 72 hour free transit.

The staff at the Okinawa airport would not allow me to board, stating that the 72 hour free transit is only valid if you do not leave the city in which you initially land, even if that city is strictly for a transfer and you do not leave the airport. They required proof of a flight from Shanghai to another country and considered the flight from Beijing to the US invalid.

Is this correct??
Thanks