The wiki explains that most of the crew from this movie is from mainland China, however it was made by a Hong Kong director and was filmed without permission from the government.
It explicitly states
at the time, no mainland Chinese publisher would have published it, nor would the author be safe from government reprisals. Hence, its anonymous publication on the Internet.
The film did had a brief showing run in December 2001, at Peking University, where interest by Chinese citizens was quite high, selling out the showings.
Peking University
In Beijing
Sounds like the oppressive Chinese government allowed them to show the movie.
From the Beijing film festival wiki
The Festival originated from Peking University, and is considered to be “the only community-based non-governmental film festival in China with a special focus on gender and sexuality”
Didnt say it was a government event. Said the governemnt would implicitly have had to allowed it to happen, or it wouldn’t have. Or at least, thats what people who think the Chinese government is an all powerful oppressive force would say. Which is my point.
ETA: Like the fact that a festival like that exists AT ALL, in the nation’s capital, proves that the government isnt an evil opressive anti-queer regime that people paint it as.