Is this a Chinese government propaganda film?

Oh that's possible. But then again, it's also probable this director actually made the prison and the interrogators seem harsher than they actually were to fit western expectations, and made Puyi more sympathetic so the story was more palatable to the audience. And as I recall when I saw it shown on Chinese tv, the scenes making the interrogator and some of the guards seem harsh only needed to be edited out, so the I think director didn't really need to flatter the government that much in order to get approval.

On the contrary, when I saw it my first thought was "this must be banned in China". Communists were against the Empire (even by the time they rose to power, there were still some people who thought It'd be a good idea to make China an empire again) and the protagonist is, yes, the Emperor. And the scenes that show how harsh the guards were, the scene with the Red Guards that shows the brainwashing of the Chinese youth...
Of course it tries to be more neutral when they show the communists, but it also doesn't seem to sympathize with them.

The version released in the west does not have Chinese government approval.

I've asked a few people I've met who used to be officials in the government in the People's Republic about their view of the movie. Their uniform answer: "All lies."

My real name is Jeff

I'm chinese and i don't think the movie really portrays the PRC in a good light. I actually became more sympathetic towards Pu Yi even though i don't view him as my emperor but a foreign occupier. I just felt sorry for him the way he existed in that old world subject to all those rules when their power really extended no further than the forbidden city and he couldn't even rule the ennuchs! Not sure it is in their interests to glorify the last emperor or even make him likeable. By the end i actually had some respect for him as he was finally able to live the way he wanted and actually do something.