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After barely speaking to him during his 81 days of solitary confinement last summer, the men who held China's most famous artist and dissident captive came to him with a suggestion: Focus on your art, they told him. Stay away from politics, and you're free to make as much money as you can.

Ai Weiwei admits it was a tempting idea. Exhibitions of his avant-garde work – including a year-long display of his most famous installation, Sunflower Seeds, at the Tate Modern gallery in London – have drawn rave reviews around the world. A relatively small part of that same exhibit (the "sunflower seeds" are actually 100 million handcrafted pieces of porcelain) was sold earlier this month for $782,500 at a Sotheby's auction, a record for one of Ai's works.

But the deal Chinese police were offering is that one Ai says he could never take, even if he wanted to. "I see myself as someone who can't stop talking," the portly 54-year-old said with a grin as he relaxed last week in the relative freedom of his home on the outskirts of Beijing. He says he never actively chose to be a political dissident. But as an artist in China, he says, it's impossible not to be.

"The officials came to me and said, 'We've been thinking this over, and we think if you work hard you could become a very good artist.' They encouraged me to focus on art, to do art shows and sell them for millions, you know, and enjoy my happy life. [They said,]'Why do you have to bother with something you don't understand so well? You criticize so much and make such big trouble and you don't know what you're talking about,' " he said, recalling one of the regular conversations he's had with officers from Beijing's Public Security Bureau since his release.

"I tried to explain to them that I'm artist and expressing myself is my job, my duty. That communicating is very important for me." It wasn't an argument that impressed the security men. "They kept telling me that I'm part of a Western strategy to change China."

After being arrested and held incommunicado and without charge last spring, Ai was released following a remarkable international campaign that saw protests at Chinese embassies around the world. But he's spent the past year in a new type of captivity. When the blue metal door that is the only entrance to Ai's home and studio is shut, life inside seems normal. He is a free man within the grey stone walls, surrounded by friends, collaborators and some two dozen cats that also treat his courtyard as home. Much of his life is online, where he says he spends between eight and 20 hours a day, posting at all hours and on all topics to his popular Twitter account.

It's only when the blue door rolls open along its rusted metal track that you remember Ai isn't free. A surveillance camera is trained directly on the entrance, recording the faces of those who visit the best-known critic of China's ruling Communist Party. The police have held Ai's passport since he was seized at Beijing airport last April. He's forbidden from leaving the Chinese capital, and is followed whenever he leaves his compound.

Even in semi-freedom, Ai is fighting accusations of tax evasion that could land him back behind bars if he doesn't pay the $2.4-million he's said to owe. Ai denies the charges and used Twitter to put his case before the public, who responded by donating the $1.3-million bond – some in large amounts, others by sending 100-yuan notes folded into paper airplanes over the wall of his courtyard – required to fight the case in court.

It's the oddest of prisons for one of the most unusual political dissidents in recent history. Writers and intellectuals have challenged authorities for centuries – the tribulations of China's jailed Nobel Peace Prize-winning writer Liu Xiaobo recall those of Alexander Solzhenitsyn and Vaclav Havel before him – but there's no precedent for a shock artist with 146,000 Twitter followers taking on the apparatus of an authoritarian state.

Some criticize Ai's provocations as crude. Among his most famous pieces is a photograph of his middle finger extended toward Tiananmen Square, as well as a nude self-portrait with only a stuffed "grass mud horse" (a fictional creature that's an anti-censorship symbol in China, the name translates into an expletive) covering his genitals. But they have unquestionable mass appeal, both inside and outside China. Influential London-based ArtReview magazine captured the dilemma Ai creates for the Communist Party, naming him the "most powerful" artist in the world in 2011.

Ai is indeed powerful, but he's also vulnerable, as his disappearance into police custody last year dramatically illustrated. His current limbo – which sees him simultaneously overexposed and heavily censored – could only be possible in the China of 2012. He's free to do many things because the government says he is. But he has no inalienable rights that the authorities can't take away at any minute.

Art and politics have always been entangled for Ai. His father, Ai Qing, was one of China's most revered poets until he was denounced as a "rightist" in the late 1950s, and deported to remote Xinjiang province, assigned to clean public toilets. His son worked in the fields during the 16 years the family lived in Xinjiang before Ai Qing was rehabilitated after the death of Mao Zedong in 1976. Back in Beijing, Ai Weiwei channelled his anger at the system through Stars, a group of artists who rose to prominence during the short-lived "Beijing Spring" of the late 1970s.

Ai left China soon after that hopeful period ended, moving to New York in 1981 to study art (and play blackjack, another passion). But the politics of home were always on his mind. He protested outside United Nations headquarters in 1989, as the tanks rolled in to crush the pro-democracy demonstrations in Tiananmen Square.

He returned to China in 1993 after his father fell ill and worked for a time within the system, most famously helping design the showpiece Bird's Nest stadium that hosted the spectacular opening and closing ceremonies of the 2008 Summer Olympics. But another tragedy brought him back into conflict with the government.

A massive earthquake struck China's southern Sichuan province just 10 weeks before the Olympics began, killing 88,000 people, including thousands of schoolchildren who were crushed when their poorly built schools collapsed. Infuriated by the lack of basic safety standards, Ai and writer Tan Zuoren began compiling a database of all the children who had died in their classrooms, and launched an investigation into what they called the "tofu" construction of the schools. The authorities retaliated, charging Tan with subversion and sentencing him to five years in jail. When Ai travelled to Sichuan to testify on his friend's behalf, he was beaten by plainclothes thugs who broke into his hotel room.

It became a defining moment for the artist, who suffered a cerebral hemorrhage in the attack and eventually needed emergency brain surgery. Today, the only pieces of Ai's work on the otherwise barren walls of his studio are an oversized list of the 5,196 names of the schoolchildren who died in the Sichuan quake, and a collection of six stylized children's backpacks. (In 2009, he assembled thousands of backpacks for an art installation in Munich honouring the children.)

"My art comes from my understanding of the world in front of me, which includes the politics," Ai says when asked how his battles with the government have affected his artistic output. "It includes all the human struggles – mental, aesthetic, moral, philosophical, and of course, in China right now, politics is part of it. But I don't have to put politics in my art. It's all part of it."

His most recent exhibit was inspired wholly by his situation. With his life already under constant surveillance, Ai decided this spring to let the whole world watch, setting up four webcams around his home and studio and broadcasting his movements 24 hours a day on the website weiweicam.com. The police quickly ascertained that the joke was on them, and demanded that weiweicam be shut down just 46 hours after it went online.

"Art can be a kind of weapon in our current time. It has the function of pushing progress in social justice, fairness and reason," said Wu Yuren, another dissident artist who recently spent nearly a year in jail after leading a protest march by Beijing artists protesting against the demolition of their studios. "The most interesting thing about Ai is not his artistic side but his personal behaviour. For example, when the government persecuted him groundlessly, he was able to reverse the situation and put the public spotlight on it. He turned it into a citizen movement. That's why people support him."

In person, Ai can sometimes seem weary of the fight, or at least of talking about it. During an hour-long conversation over glasses of oolong tea, he mixes long and engaged answers about his art and philosophy with curt and practised ones about his politics. He's resigned to the fact the police will call on him after they see he's done a foreign media interview and will interrogate him about the answers. While he pulls few punches, he nonetheless seems more restrained than in past interviews, as though he doesn't want to give the police any new reasons to punish him.

Ai says he tries to keep an even keel, not to get too excited when he reads the reviews of his show at the Tate, or too down when the police haul him in for another chat. But he admits he was shocked by how he was treated during his detention last year, a period he's only begun talking about.

"I'm not surprised they punished me, but I'm very much surprised by the way they punished me. They openly told me there are no laws they will follow, there are no rules. … I was treated more like a spy, espionage, and when you're in that position, nothing can protect you. You're [seen as]against the state's interests. I'm surprised they see me that way, that they see me as dangerous, as a terrorist."

Ai acknowledges that the government's overreaction to him has helped fuel the international interest in him, and by extension his art. But he also says that being a political activist saps much of his creative energy.

"If I walk in the park I see people, secret police, peeking from the woods, taking pictures and photographs from far away. It's very strange. Why do they still do that? I have been detained. All my activities are so open and transparent. I speak all my mind in the media. Why do they still have to spy on me or peek in on me? Sometimes I get very frustrated," he says, his forehead wrinkling in irritation.

"People always ask me, 'How much time do you have for art?' I have no time for art, is the truth. I just have to handle it. I have to work – no holidays, no weekends, wake up early at 6 a.m., [go to]sleep always past midnight. Every day I work three days."

He says nothing for a long time, then resumes his answer. "I always believe you have to work hard while you can. Very soon you might lose interest. Or not be able to work."

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