Right in the middle of NGV’s new show of contemporary Chinese art, A Fairy Tale in Red Times, there’s a work so bright it’s hard to look at. This is Shi Yong’s A Bunch of Happy Fantasies (2009), an assemblage of neon red Chinese characters forming a poem composed in a moment of narcotic clarity. But the text is completely illegible. Even if you can read Chinese and battle through the red glare, the letters are upside down. But the work stays with you, even if it’s just the red trail burnt into your retinas as you move on to the rest of the show.

A Fairy Tale in Red Times is a selection of work by 27 Chinese artists, all from this century, and all on loan from the collection of Sydney’s White Rabbit Gallery. A Bunch of Happy Fantasies would also be a fitting name for the whole show. It’s full of dreamy images, ranging from utopian vistas realised with centuries-old techniques to works responding to 20th-century propaganda. It’s a glimpse at a group of accomplished and confident artists attempting to reconcile China’s present with its past.

This is NGV curation at its best: a set of works that strike a balance between thought-provoking and crowd-pleasing; memorable images with subtle references and complex interconnections just beneath the surface.

There are huge new works such as Yong’s neon piece and Zhu Jinshi’s huge paper, bamboo and cotton cylindrical sculpture The Ship of Time (2018), which you can walk through. And there are smaller, more subtle works that command just as much attention. Wang Ningde’s strange and somnolent Some Days (2002–9) series features photos capturing families and workers in Mao-era clothing, their eyes always closed. In the series Trace (2015–16), Jiang Pengyi strips the layer of coloured emulsion from Polaroids, physically twisting and distorting the images until they look like skin or rumpled cloth.

Judith Neilson, founder and director of White Rabbit, is the common link between all these works. A billionaire investor, Neilson is globally renowned for her collection of 21st-century Chinese art. I catch a few minutes with her in front of Yang Jiechang’s Tale of the 11th Day (2012–14), a 20-metre ink-on-silk landscape depicting a vast animal orgy.

A bull mounts an elephant. A tiger a deer. A meerkat watches a wolf and a human woman in the midst of a passionate embrace. It’s a pornographic, utopian fantasy rendered in the style of Tang-dynasty Daoist and Buddhist religious paintings. Neilson, a well-spoken, finely dressed woman in her sixties, finds it very amusing.

“I’m just looking at that poor polar bear,” she chuckles. “Is that a chicken?”

This work was bought on one of Neilson’s many collecting trips to China. Neilson doesn’t collect with an academic’s interest or an art market spectator’s eye – it’s all instinct.

“Everything is visual for me,” she says. “If an artwork has to have a name or an explanation, I think it’s failed. I’m not interested in any of that. I just buy what I like.”

Neilson speculates that there are 100 million practising artists in China. Some 700 are represented in her gallery. This show of 27 artists is a fragment, barely a slither of what’s happening in the Chinese art world.

“People always ask me about China, and what’s good and what’s bad, but I don’t see it,” she says. “China is so enormous I don’t see how any Westerner could have an opinion on it, frankly.”

I have plenty of opinions. But so much of this show seems designed to remind us how little we actually know, that China is a huge place with a culture richer and deeper than outsiders can hope to understand.

Zhang Peili’s Happiness (2006) is a looping, GIF-like two-channel video. On the left, a man makes short proclamations in Mandarin, the video pausing every second or so for a large audience on the right to applaud enthusiastically in response. I’m told the statements on the left are banal, out-of-context phrases, and the rapturous applause is an ironic comment on the adoration heaped on Mao Zedong.

Without command of Mandarin I don’t have direct access to the irony. But it doesn’t make the work any less potent. In fact, the confusion adds a layer of meaning.

Liu Wei’s Density 1–6 is a series of huge geometric sculptures – more than six feet high – made from books sanded smooth like marble. Look closely and you can see the pages stacked like bricks. The integrity of the structures relies on obscuring the knowledge written on the pages; it relies on keeping us out.

On Neilson’s last trip to China, she revisited Xindu, a district of Chengdu in Sichuan province. “I was standing there and suddenly realised, ‘I’ve been coming here for years, and I know nothing.’”

I know the feeling. Standing in the exhibition’s masterful final room, enveloped in the womb-like interior of The Ship of Time, listening to the thundering waves of Tang Nannan’s video work Billennium Waves (2015), I sense that I’m just below the surface, struck with the calm apprehension that there’s so much more here than I’ll ever understand.

A Fairy Tale in Red Times: Works from the White Rabbit Collection is at NGV until October 6.