If you get free housing and tuition, 3500 is enough to live like a duke or at least a lowly baron... I don't understand the people who claims that you'd just barely 'get by', I get by perfectly fine on -much- less:
Excluding rent and tuition fee, I basically live for less than 2500, probably more along the line of 2000 RMB, per month in Kunming. I pay 750 per month for a room, but there are cheaper accomodation available, even in the city center, though the standard of those rooms is not western so to speak. I eat like a king, going to nice restaurants quite regularly, having good hole-in-the-wall budget restaurant food all the other times, but here's the trick: I very seldom eat -western- food, or buy beers in clubs and (centrally located) bars, because that's what really costs a fortune. I don't take cabs, using the public buses whenever possible. If I need stuff, I buy it in the second hand markets. When I go to cinemas, I go to the cheapest screenings, which are often half the price compared to prime-time. If I go clubbing, I do it like we do it anyhow in Sweden, which is to build up a sound foundation of alcohol in the blood at home before you leave, which'll save you a fortune in drinking money, plus, this is China, unless you go to a super-laowai place like Moondog/Mask, chinese people will be giving you free beers before the night is over. Also, never forget the wonder that is a student card, and that, at many tourist sights, there are...ways...to avoid the ridiculous admission fees.
This is also excluding travelling in Yunnan, but that can easily be factored into the remaining 1000 RMB, and should absolutely not be missed because Yunnan is godawesome. For cheapest possible travel it's adviced to travel in groups with an even amount of people, as that means you can stay in the very cheapest hotel rooms (shabby doubles), and split the cost for them. Hitchhiking is very easy in China, and it's possible to hitchhike for very vast distances, but trains and buses are not -that- expensive, and for travelling just in Yunnan a thousand per month is by far more than enough, provided you're prepared to couchsurf, stay in hostels and super cheap hotels.