In the late 1960s, during Mao's Cultural Revolution, idealistic communists volunteered to relocate to 'underdeveloped' areas in China to build and run new factories. At the time, China feared an attack from the Soviet Union and the inland factories were seen as a 'Third Line' in the national defence because they were far from the more vulnerable eastern coast.

It's against this backdrop of internal immigration that Wang Xiaoushai (Beijing Bicycle) set Shanghai Dreams. The film, which won the Jury Prize in Cannes 2005, is deeply rooted in his personal experience as a child of one of the many families who uprooted themselves from Shanghai to venture on a development project devised by Mao.

The film is set in 1983, when that generation who left their hometowns to move to the countryside are craving to get back to their home cities because they want their children to go back to their ancestral roots. The trouble is that their children are attached to their places of birth, a cause of consternation for their homesick parents.

We follow the domestic drama of one family in the Guizhou Province, a rainy, industrial place that resembles the cinematic iconography of working-class Britain, with its brick factories clouded in wet melancholy. Wu Zemin, the father of the family in this slow-burning novel-like film, has become tyranical towards his daughter Qinghong, monitoring with a fierce eye her devotion to studying which he sees as her passport to get back to Shanghai. This includes frowning upon her adolescent instincts to go out and have some fun in the company of her best friend, the sweet, squeaky-voiced Xiao Zhen, whose parents bring her up in a more relaxed manner. Wu Zeimen's wife often clashes with her embittered husband over his strict attitude to their daughter.

Telling the many plot details that develop within this micro-universe would be giving the film away, but you can sum it up as a Chinese version of 1960s 'generation-gap' narrative templates. Xiaoshuai adopts a deliberately Western style of realist film-making as a meta-device to place the audience on Qinghong's side, without, however, pointing the finger at her father for being rather cruel at points, since his motivation is benign and he is, after all, a victim of circumstances.

Often painterly beautiful and always superbly acted, Shanghai Dreams is a fine example of how the autobiographic can be used a departure point to create universal stories steeped in a geo-political reality. Its rhythm is sustained throughout with flawless precision. Xiaoshuai slips only once by including an unnecessary 'dramatic event' to stir up the emotions and precipitate the end in a film that is beautifully demure. But fortunately this misstep does not compromise the rest and Shanghai Dreams lingers as an unpretentious film, infused with a richness of life that constantly rewards the viewer.

Which came first in your mind: the wish to tell the story of these characters or the wish to deal with this particular period in modern Chinese history?

- I still have deep feelings for the place where I grew up, and for the people there - especially the ones who, like my family, came from Shanghai. I was able to leave Guiyang, and I miss those who had to stay behind. The main motivation for making this film was to deal with this part of modern history that so few people know about. And I wanted to say something about those people I knew as friends and classmates, people I dearly miss.

You were a teenager yourself in the early 1980s. Is any of this story drawn from your own life and experiences?

- Obviously the general picture the film draws is based on my memories of Guiyang and my experiences there. I was 13 when I left. Many years later I heard stories about what happened to the friends of mine who weren't able to leave - what became of them when they grew up. Those stories included the story of Qinghong and how her whole family tried to escape back to Shanghai. The film's portrayal of Qinghong's parents is very much influenced by my own parents. That's especially true of the father. My own father was profoundly dissatisfied with his life and had a burning desire to get back to Shanghai, just like Qinghong's father in the film.

This isn't the first time you've shown this kind of strict father in your work, and I guess such figures are always somehow related to your own father. What are your memories of him?

- My childhood was very strongly marked by my father's imposition of strict discipline and by his frequent bad tempers. He forced me to learn how to paint, and quarrelled all the time with my mother. He was sometimes called away to do some work with the Peking Opera troupe in Guiyang, and when he was away I could play and do whatever I wanted to. But the freedom ended as soon as he got back. The year we left Guiyang, I cried in the car.

Qinghong's name is made up of two colours: 'Qing' means green, and 'hong' means red. Is there any special significance in this name?

- For me, the name Qinghong reflects the feeling of those times rather precisely. The 'green' somehow stands for the naivety of the people, their kindness and their wish to survive. In some way this clashes with the abnormal things that people either found themselves doing or chose to do in those days.

You went to Guizhou to shoot the film. Did you have any particular problems filming
in this relatively 'backward' area of China?

- The main difficulties were with the leaders of the factory we shot in, the place that used to manufacture armaments. They didn't really understand what we were filming, and they were really scared that we were representing a negative image of their dilapidated factory and the way their workers live. We had to liaise with the local people in a very sensitive way too, endlessly stressing that we were no different from them - saying, in effect, that we were locals too. And there were lots of logistical and practical problems: the locations, the sets, the budget, even the weather. I've never had a tougher shoot.

You've successfully made the transition from 'underground' director to 'overground' director. How are you finding your new situation? Have you had to make many compromises with the Film Bureau?

- It has felt very natural to go from 'underground' to 'overground', and I haven't really had to compromise at any stage of the process. I think that's because things generally have gotten so much better in China's film industry. The authorities seem to respect my intentions, and I've been able to do things the way I always have in the past. Some years ago I used to hear criticisms that I put too much emphasis on the behaviour of individuals, and I don't hear that any more. I think our society has become more aware of individual thoughts, feelings and behaviour, and I think it's only right that creative people should be trusted to use their individual perspectives to express their understanding of society and the way that it changes.