Even if OP's friend do report on that guy, i am 99% sure he either have connections in legal system or can shred enough $ to get his way out. It's the rule of all business in China, either you 'know' someone or you can shred some $ to have it your way
however pp do report the authorities are enforcing the rules in Beijing b/c of 2008's Olympic, not sure how far the influence would be for the rest of China?
Yes, you are right, ashamed to admit this, but you are right. If they guy started doing his "business" like this, I would say, he at least know he would have already found out ways to avoid punishment.