Should I avoid Shanghai because of air quality problems?

TL;DR: I wouldn't cancel a three-day trip because of the current spike.

1. Pollution is like smoking cigarettes: while it's theoretically possible to get lung cancer from a single puff, in practice it's repeated exposure over the years that kills you. Barring asthma and the like, three days of bad air is unlikely to have any measurable impact on your health (and, unlike ciggies, haze isn't even addictive!).
2. Most larger office buildings, and virtually all larger hotels, have central air conditioning systems that filter the air. So your exposure indoors will be very limited.
3. Shanghai is by the coast, so pollution comes and goes with the wind. By the time you get there, you might have blue skies. (This is not true for China's worst-polluted cities, which are inland.)

Note: This was written in late 2014. Anyone planning a trip to China should check typical conditions via any of the available sites, but I'd imagine that things will not be especially different for some years to come.

Over numerous trips to China I have found that the claims re the effect of air quality seem to be excessively alarmist. If you are asthmatic or similar it is not liable to cause major problems for a short visit spent mainly indoors. While the worst case conditions can be extremely bad in many Chinese cities I imagine that they are not vastly different than the worst conditions that an asthmatic needs to be prepared for in many locations. ie Not good but also not so unusual that you may not encounter them in many places - which is why asthmatics need to have, and usually do have the knowledge and experience and medication to handle occasional bad events.

Shanghai real time air pollution monitor results here

Note that these are claimed to be accurate real-time results BUT I have no ideas whether they are in fact "cooked".
They are reporting PM2.5 as the main indicator - a few days ago they were using PM10. Both are charted. The update time is shown on the webpage.

PM2.5 is shown here as 159 (ug/m^3) and has had a range of 129-492 in the last 2 days. International limits vary by country but 50 to 100 is typically the long term acceptable limit.

I've been in numerous Chinese cities when the air was vastly affected by pollution without being troubled by it at all. Others are less lucky. For a period of only 3 days I'd expect it to not be a major issue.

My 2 yr experience in Shanghai tells me that the air got seriously bad from mid-Nov all the way to May. Only around the summer and fall time the Ocean wind comes in to blow off the bad air.

If you are allergic to any airborne particles, be it dust or mold, and you continue to breathe those PM bad air for awhile, your allergy will get worse.

I used to work in a TB lab where we were using 3M N95 with comfortable fit. I got mine from http://amzn.to/1V9m58V. 3M doesn't sell it in China. Good luck buying it online in China. I do reuse the mask for multiple time until the belt broke. And by then, the mask looks seriously grey. So the money I spend well-worth it.

Do check out the real-time air pollution map from UC-Berkeley. Gosh ! http://berkeleyearth.lbl.gov/air-quality/map.php

Not to mention people in Shanghai subway sneeze or cough all the time without covering !

Yes, no doubt about it. If you can, avoid any Chinese urban areas. I live in Hainan (an island in southern China, with the best air quality in the country), the difference is HUGE. Believe me, you don't want to put that shit in your lungs, whatever others less careful about somebody else's health (and probably also their own) say.

Just to add my two cents but I arrived at Shanghai 6 days ago and while my first reaction is "oh, it stinks so bad!", the actual air pollution statistics is not so bad as to consider cancelling your trip, especially a short trip.

In Air Quality Index, Shanghai reaches "Unhealthy" label around noon quite often, but so do all of other Asian cities like Tokyo, Seoul, and Hong Kong, except they are not so bad as Shanghai. If you take Shanghai too seriously shouldn't you also take those cities seriously?

This may not apply if you have some respiratory problems as others mentioned. But for normal people to travel, the air wouldn't be a problem.

I have asthma and spend plenty of time in China. Sometimes, especially in the winter in North China, the air is horrible (poor people burn coal for heat). Other times, things are ok. The last two years have been somewhat better.

I have found it to be manageable. If you do not have asthma or another respiratory disease, I say "Don't Believe the Hype" and think it should be ok for a small handful of days.