XIAOLU GUO taps her fingers on a picture of her in a newspaper, illustrating the news that her first English-language novel has been shortlisted for the Orange Prize. It's quite an achievement for a 34-year-old "simple peasant girl" from a tiny Chinese fishing village on the coast opposite Taiwan. Although a prolific writer and film-maker in her native tongue, Guo could barely speak English when she arrived in London four years ago.

Yet A Concise Chinese-English Dictionary for Lovers charts, in wittily and deliberately fractured English (in itself a controversial factor for a literary competition), the progress of another communist-indoctrinated "young peasant girl" in the town of "Big Stupid Clock" from bewildered misunderstanding, through sexual fulfilment with an older, bisexual Englishman, to intellectual independence and linguistic fluency.

You'd think Guo would be pleased about the Orange judges acknowledging her talent and her skill. Instead, she's ambivalent. "The prize is good for the [shortlisted] novelists, it supports literature and gets their books read by more people. But on the other hand we are free advertising for them. It's so f****** embarrassing."

Guo, sitting in a cramped living room stuffed with books, nude photographs and arty film festival posters in her grotty east London council flat, is a petite, delicately beautiful figure in miniskirt and boots. She flicks her hair away from her high-cheekboned face and grins. "Maybe because I am a Chinese peasant I can say this directly," she says.

It would be a mistake to equate Guo too firmly with her initially naïve heroine - dubbed Ms Z because the Brits can't pronounce her full name, Zhuang Xiao Qiao. True, Guo's childhood in the post-Mao China of the Cultural Revolution - which included violence, abandonment, and her father's internment in a labour camp - sounds harder even than Ms Z's treatment at the hands of her brutish parents, peasants newly enriched by ownership of a shoe factory.

But Guo, a graduate of Beijing film school, is "much more educated and sophisticated" than her literary creation. In previous interviews, she has pooh-poohed the idea that the book might be autobiographical. Today, though, she tells me that the book's story of sexual awakening, and the chapter that details a matter-of-fact abortion, were at least partly based on fact.

To understand Guo you need to know about her extraordinary past. Her mother was a dancer in a travelling troupe, her father, like her older brother, a "peasant artist", which meant that "he would work in the fields all day and then go home and draw with ink on paper every night". One day he was taken away, apparently because his art was considered too individualistic.

"I don't know if you can say he was arrested," says Xiaolu, "but he was put in a camp for the cultural revolution for ten years, doing labour work with thousands of other intellectuals, blowing up mountains to make room for more rice fields."

Xiaolu was born six years before the Chinese government instituted its one child policy to combat overcrowding, but even then girl-children were not valued, especially in rural areas: "When I was born, my mother didn't want a baby girl, so I was sent away to another family. But that's what happened. Any girl baby born in the 1960s and 1970s in the countryside basically had to be abandoned."

She moved from her foster home to her grandparents' house in the fishing village, and was raised by them until she was eight. The only literature available was Chairman Mao's Little Red Book, and for years there was no electric light: "I remember when the first lightbulb arrived in the village. They clicked it on and one old man tried to light his cigar on it." Her grandmother had been married at 12, and was subjected to the practice of foot-binding. Xiaolu still remembers seeing the long white cloth stretched out on washing day; the sight of the crippled feet. The marriage was a brutal one. "My grandfather spent all his life beating up my grandmother, and then he committed suicide."

Things didn't improve when she was reunited with her parents and brother. "With me my mother was always very violent," she says. "I didn't have anybody to love, or anybody to love me."

She would later put all this in Village of Stone, which was the first of her six Chinese-language novels to be translated into English. Xaiolu began writing poetry and stories at 12, was published at 14, and at 18 - more surprisingly - got into the prestigious Beijing Film School.

"I hated the village, I just wanted to get away to the city," she recalls. "I wanted to do something romantic, so I chose film school to study at, because in China there is no other literature school. I studied scriptwriting for seven years, first a BA, then an MA, and didn't make a single film.

"In China, you have to send your script to the censors, and then your film is made, but all my scripts were banned. They told me I shouldn't write about rebellious youth, but I didn't want to write films about [Mao's] Long March."

She wrote four novels while at film school ("because book censorship is more loose"), and two more after she graduated. "But I wasn't satisfied with my books," she says. "In China there is a huge problem with self-censorship. It's inside you and imprisons you. You are not free as an artist. It's a fear your book will be banned and you will never be read, inside or outside China, and your life will be threatened."

As she had at 18, she began to cast around for a means of escape. It came through a British Council-sponsored year at the National Film School in 2003.

Barely able to speak English, she upped sticks to the first of a series of dire flats in Hackney, east London. "I like it here because the community and the street markets haven't died; it has a street-life like Beijing," she says, "and maybe it's kind of my destiny, because I'm from the East, to be in the East End of London."

Initially, she hoped to devote herself to writing, but instead made her first film, Here and Now, a "poetic documentary" about an emigrée Chinese girl haunted by memories of Beijing and a tiny fishing village, and by images of a tragic death.

Other films followed, most recently How Is Your Fish Today? Selected for the Sundance Festival, it has just won the prize for best fiction feature at the Créteil International Women's Film Festival in Paris. "But basically I make art-house movies that lose money," says Xiaolu, "and I live off my novels."

A Concise Dictionary may mark a breakthrough in sales in the West, where even the major works of Chinese literature are, to Xiaolu's half-amused disgust, little known. And it marked a breakthrough on many other levels.

Trying to write with the clamour of London around her, Xiaolu found herself "losing touch with my mother tongue, but facing an impossible gap to achieve the language I haven't lived through yet", so used her muddled tenses and colliding words to her advantage.

The second breakthrough was the subject matter. The novel is full of sex, some of it heated and palpitating, some of it funny. "I always wanted to write about women's sexuality," she says, "because in China we are taught that orgasm was a male thing, that women only have an emotional experience during sex because our bodies are different." But in Britain, she found the pursuit of the female orgasm was "almost industrialised, there were all these books".

In one chapter, Ms Z finds herself pregnant and briskly organises an abortion. "Lots of women in China have three or four abortions because of the one-child policy," Xiaolu says bluntly. "Myself, I have had more than two or three, but there is no self-pity. If you talk about abortion with English women they start to cry, whereas Chinese women think, 'Yes, we can be independent now, and not have ten kids.'"

Having had three long-term relationships in Beijing, Xiaolu had "three English boyfriends, one after the other, all of them more or less artists". Their reward is to be partially immortalised as Ms Z's nameless lover. "Well, there is maybe a little bit of my last ex-boyfriend in him," she admits, "but the character was based on a number of people - some old-fashioned English gentlemen I met, as well as some hippy artist kids in Hackney - and the real starting point was my frustration, as a Chinese artist, misunderstanding intellectual English society and the English lovers I had."

Ms Z comes a long way in the book from her initial malapropisms such as "the Loyal Family" and "woovering the floor". And in three years of writing Ms Z, Xiaolu Guo has come a long way, too, as an individual, an artist and an English speaker. She has another film script in development, and a novel on the go that promises to be even more immediate and personal, as she is experimenting with Jack Kerouac's unpunctuated Automatic Writing technique. For two years she has been in a relationship with "a man who is European, but not English".

She still returns to Beijing every summer to shoot footage that she edits in England, and says the burgeoning Chinese capital is in many ways more "futuristic" these days than "backwards" London with its slow Tube trains and crummy pubs.

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