Yes, it absolutely was permitted - the CCP allowed criticisms of the Cultural Revolution and the backlash against it, helped by the state, is a crucial part of the story of the post-1978 era in China. I'll give some brief context.

Initially after Mao died, the reigns were taken over by Hua Guofeng, who apparently had Mao's blessing. One of the reasons that he is viewed as so unimportant today is that he failed to offer a credible path forward from the CR. He himself represented a part of bureaucracy that had benefited from the CR (there having been a massive influx after 1968, when the state consolidated the radicals and recuperated the Party), but on the other hand he also arrested the Gang of Four (the most prominent proponents of continuing the ethos of the CR) and introduced modernizing reforms that had been drawn up by Deng Xiaoping (a longtime leader, who had initially been close to Mao's positions but came to dislike his ambivalence about the Party, and was purged during the CR). So there were major tensions. Deng managed to sideline Hua between the death of Mao in September 1976 and about 1978 (he was allowed the keep some of his titles for a time - Deng never officially took any of them for himself, but he was widely acknowledged as 'paramount leader'). This involved those loyal to Deng marking up victories in the Party and its committees against those loyal to Hua (known as the 'Whateverists' after saying that they would follow 'whatever Mao had ordered,' to paraphrase).

Deng's victory was a major blow to the legacy of the Cultural Revolution. He himself had been purged twice. But just as important was his support base: "Drawn to him were Party cadres who had been attacked, humilitated, and "overthrown," intellectuals who had been silenced and persecuted; disillusioned former Red Guards who had been betrayed by Mao's torturous political course and found themselves members of "the lost generation"; millions of urban youth who had been shipped off to the countryside; and millions more ordinary citizens who had suffered a variety of physical and psychological abuses." (Meisner 1999)

Deng and his allies went about rehabilitating those who had purged during the CR, and making symbolic moves to denounce its legacy. For instance the Tiananmen Incident of 1976, where there had been a mass outpouring of grief at the death of Zhou Enlai, which had been called a 'counterrevolutionary act' at the time, and was the reason for Deng's second purge, became a 'revolutionary event.' The trial of the Gang of Four (which finally took place in 1980) was a way for Deng and his followers to denounce the CR without denouncing Mao. The reasoning was that while the Gang of Four (as well as Lin Biao, whose supporters were also put on trial at the same time) engaged in criminal acts during the CR, Mao merely made mistakes. Meisner says that "Deng's aim was not to condemn Mao to historical oblivion together with the Gang of Four. Rather it was to rescue Mao for history by separating him from the Gang, although it was a humanly fallible Mao who was rescued, considerably diminished in historical stature and moral authority."

This idea - that Mao was a great father of the People's Republic, but made mistakes in his later years was made even more clear in the verdict that the Party gave on the 27th June 1981 with the 'Resolution on Certain Questions in the History of Our Party Since the Founding of the People's Republic of China.' It bolstered the insistence of Deng and his allies that Mao's mistake was his attack on the Party during the CR, based on "erroneous left theses," which - and this was the crucial statement in the verdict - were "responsible for the most severe setback and the heaviest losses suffered by the Party, the state and the people since the founding of the People's Republic." It actually had produced only a fraction of the death toll of the Great Leap Forward, but for those making the verdict the major fault of the CR was that it diminished the stature of the party and allowed the people to denigrate those they perceived as bad cadres. It was common for people to say of Mao that he had been 70% correct and 30% wrong. So the Party didn't disavow Mao himself, who was still seen as a great revolutionary figure, but they did promote a view of the CR as a time of luan (disorder or chaos). This was often counterposed to what the Party was doing under Deng (so the voluntarist belief in the masses during the CR was counterposed to Deng's insistence on the development of the productive forces under a strong state). You might even say that the CR was the last burst of the revolutionary hypothesis (that the masses, in Mao's language, could do anything) in the PRC, and that the victory of the old leaders under Deng was its final defeat. They would therefore often use the failure of the CR to suggest that there was no other way to do things apart than the strong and unaccountable state that Deng revived. From a brief look, it seems that The Last Emperor was approved by the Chinese government before it was aired, which is not surprising - it fit their narrative (and particularly in 1987, when the market reforms started to cause very serious problems and the CCP had to propagandise to the effect that there was no other way, and certainly no return to Maoism).

Source: Maurice Meisner's Mao's China and After (1999, 3rd Edition) - There are plenty of other worthwhile books on the period, but this is by far the best IMO.