The law may be the law, however each province in China can interpret the law as it chooses. The central government has very little say over the day to day workings in the provinces. Some areas may be more inclined to adhere more strictly, some couldn't give a toss, and what about the SAR's (special autonomous regions )?.
Besides that, there has to my knowledge, never been a single prosecution of a foreign teacher for not having a degree but teaching anyway, and the most that has ever been reported is that the person involved has been asked to leave China.
China needs native speakers (who mostly teach conversation English anyway) and need drives the market.
It's wrong to threaten dire consequences that don't exist.