Jimmy ,
That is a good contact to have. I recently found out that these same officers have a huge say in licencing schools so they can employ foreign teachers. Their power is wider than you think so to have one as a family member is great news! I don't think it will make a difference as long as he's in the same province and there's probably a network between these people anyway, after all it's the Chinese way.
As for working for cash, it can be done but not to the extent that you could make a good living that way. If you just want to fill some time or earn a little beer money it's fine. A red envelope here and there will not raise an eyebrow. The Chinese are ruthless when it comes to money and if you cut into their business and do not have the right "friends" then they will feed you to the sharks with even thinking about it. It makes sense to get the right visa at the beginning and not to leave your self open to this abuse. If all you want to do here is stay with your wife it really is not a difficult thing to do. It may be a little frustrating at times but China is just like that but as you know living here has it's own rewards!!!
