In some ways it might be good if they do manage to block VPNs. At least then people won't have any option other than to put real pressure on the government to give up their ridiculous censorship.
The censorship is already there, and the government is hard to pressure. What I'm saying is that blocking VPNs will make more people put pressure on the government. Right now there is very little pressure, so they can get away with it. Can they get away with it if a large percentage of highly educated and well connected people are very strongly opposed to it and can't do their jobs properly?
Well, Mao certainly could during the cultural revolution.
Political conditions were very different during the cultural revolution than they are now.
The Chinese government has demonstrated very clearly over the last few decades that it is more concerned about maintaining economic growth than about maintaining "ideological purity".
Of course, the money would go to those capable and loyal enough to actually try and make something. It could be used to both decrease the objective dependence on the politically dangerous but important outside-GFW resources, and bring enough rivalry between the less loyal for the access to the government grants to weaken any latent opposition.
As far as I understand, GFW does not block all access; it blocks politically-sensitive access. There's plenty scientific / engineering / whatever resources on the Internet that don't carry political messages, and don't try to. I bet effectively indexing and censoring the outside-GFW internet is a viable task for China's IT. It does not need to be as good as Google; it needs to just be OK to allow the important R&D to continue.
What's more likely is they'll work out a deal with trusted universities and corporations to give their employees access to an official VPN through which they can get unrestricted internet access. But all traffic through this VPN will be closely monitored.
Same for twitter: send your tweets via an approved gateway, get them reviewed an pushed to Twitter, get pre-censored retweets as they appear and get approved. Make the international voice of the PRC researchers official-only, Soviet-style.
With corporations, it's harder. But for each "we don't trust your servers" from a Western corp side there could be a symmetric "we don't trust your servers" from Chinese side. The resolution depends on who needs the other side more; I bet that in most cases it would be Western corporations giving in.