Yes, I agree it is somewhat of a grey area we're wandering into here regarding whether or not a degree is mandatory. There are some websites that address EFL in China issues, but even they are not exactly clear regarding this particular issue. EFL - Law.com does have some interesting information regarding contracts and a few other tidbits, and has some fairly good links to other sites that address the matter of teaching here in China. The following is a quote from one of those links, but as you will note it shows that the issue is somewhat ambiguous. (In fact it is ambiguous enough that I must retract my previous assertion that it is only lawful for schools to hire a foreign teacher if he or she has a BA.)

"The regulations state very clearly that all Foreign Experts, including teachers of English, must have a minimum education standard of 1st Degree; however, where an applicant can clearly demonstrate an equivalent "academic" standard through experience, sometimes the Foreign Affairs Office may approve such persons. All applications are individually assessed."

Now then, anyone that's been in China for any length of time knows that schools can find their way around the regulations. Private schools are especially adept at this, but of course they are often using guanxi to pull this off. Those that don't have the benifit of guanxi often convince their employees to make the quick trip to Hong Kong or elsewhere to renew their business or tourist visas. Some teachers are willing to do this just because they want to stay longer in the particular area where they're teaching - more power to them.

By the way, if anyone can provide the information that allows one easy access to said Foreign Affairs Office, that would definitely be helpful to many people. Foreign Affairs Officers are of course available on most university campuses. And I once spoke to Foreign Affairs Officers in Jingdezhen where I was expertly cheated (see archives). However, they seemed incapable of doing anything and in fact, though they were friendly and accomodating, they stated outright their inability to do anything about the situation. The question then is where is the official FAO. Is it only provincial or is there an FAO that covers the entire country?