This is true, Onlyone. It's what I was told when I tried to get a work permit. I thought I would have to go back to the UK.
Despite this, there are legal visa agents in Hong Kong which can arrange a provisional Z visa, which has to be validated by medical tests and police registration within a month of entering China. I know because I did it only a couple of months ago, at the height of Olympic visa red-tape bureaucratic obstructionism.

There were plenty of other people at the office doing the same thing.
I have no idea how the visa agents do it. I only know they're operating openly and legally.
WHether they have connections or not, I don't know.

"according to Chinese law"...
When I first came to China in February, I taught at a public university in Guangxi province on a tourist visa which they quickly transformed into a residence visa. I think public schools have the connections to do this, but don't expect a small and/or private school to have the ability to turn this trick.

If u r employed by a public school, like a university, you must endure a long and complex procedures~
first, the Work Permit for Foreigners...
then, the Visa Notification to the Chinese embassy in ur country...
with the above papers, u can apply for the "Z" visa...
hold Z visa to China... get the Foreign Expert Certifidate...
and apply for the Living Permit for Foreigners in local public security bureau...
finally, registered in the public security ogran of ur living area.
There will be some one in charge of foreign affairs of the school to apply all these things for u, but it's also not easy for u to prepare all the documents required~~

But there r some good points of holding the Expert Cert.. like u can exchange ur RMB salary to ur country's currency, and usually no police will find u trouble...