VPN like Witopia should work well. I lived in Shanghai for a few years until this past March and that was the standard way to get things done. Main government hassle is that they occasionally block the specific server and you need to change IP addresses of the server you're connecting to. You also want to use a non-China DNS server (like 126.96.36.199).
This approach is so widespread that I never heard about anyone getting a visit from the police. In general, they aren't big on hassling foreigners who are there legally because of all the foreign-directed-investment that comes related to those expats - makes for bad impressions.
Overstaying your visa is a big no-no though and they have started visiting expat bars and doing passport checks.
Witopia will send you a nastygram if you use file sharing services like bittorrent. Fortunately, that isn't blocked by the GFW.
You might want to check out shanghaiexpat.com. Plenty of advice there.