It's not like you don't have options, as opposed to the majority of the Chinese population, for who moving out is not an option.
Also, after moving out there is not much to gain from the situation any more so any time you invest in to getting 'uppity' is wasted.
On another note, I wonder how much of the paranoia is really warranted and how much of it is based on media hype, I have two friends working in China and they're managing to get along with government officials well enough, so far, even when they're critical.
Does anybody from China have any experience with 'getting uppity' with Chinese officials as a foreigner doing business in China? As in "Hi, I need this to do my work, can you provide it or will I have to leave?" (which doesn't sound all that uppity to me anyway).
edit: by the way, funny the moderation in this thread is making me wonder how many people on HN have an irrational fear about all things Chinese. They can't all be moderating out of personal experience.
The real problem is the international companies providing all this nifty IT tech to actually realize this 1984 path what is going on in China.
source: http://www.corpwatch.org/article.php?id=4854
There may be others though.
If China is on a "1984 path", all I can tell you is the U.S. and UK are ahead of them at the moment in terms of data collection.
As to needing to be an insider to get your business going. This is only true for certain types of business. For those types, as a foreigner, you'd do well to stay out of it anyway, without regard to how connected you are.
Basically this is something I've just gone ahead and started, will work my ass off to make work, and if it does, and is worth while then I'll go official.
I'm willing to host it for free for you if you play nice just to get you out of the bind you're in.
Mail me if you're game.
Good luck with your business. I do recommend getting a company in order as soon as you can afford it. For the most part, so long as you are not cheating the tax man, you can get away with operating without proper company structure for a while. Also, when you do setup a company...shop around different districts for tax deals. Some districts in Shanghai, for example, may give you a lower tax rate to encourage your type of business. IT is usually a preferred business type.