China limits Hollywood films as trade war escalates to services

China announced it would curb imports of Hollywood films, opening a new front in its trade war with the US hours after President Donald Trump’s record tariffs took effect.

Authorities vowed to “moderately reduce” the number of US movies allowed into the world’s second-largest economy in a Thursday statement — a step floated earlier this week as a possible retaliation measure by two influential Chinese bloggers. 

“The wrong action of the US government to abuse tariffs on China will inevitably further reduce the domestic audience’s favorability toward American films,” the China Film Administration said, announcing the move.

Shares of entertainment companies including Walt Disney Co., Paramount Global and Warner Bros Discovery Inc. were down in pre-market trading as part of a broader pullback in markets.

While President Xi Jinping’s government held off from an outright ban of US films, the move signaled Beijing could now target American services in the trade war. That opens up a new menu of retaliation options: The US runs a service trade surplus with China, mainly in travel, intellectual property royalties and transportation.

A state-media affiliated account, which has been used to signal Beijing’s stance on trade issues, this week cited an expert saying China doesn’t rule out targeting services.  

“China has plenty of tools for retaliation,” the article on Yuyuantantian’s social media page said. “Of course, China will widely listen to opinion and minimize the negative impact on the domestic economy while trying to maximize the effect of countermeasures.”

Tensions between Beijing and Washington have spiraled beyond tit-for-tat tariff exchanges in recent days to also impact people ties. Chinese officials Wednesday cautioned citizens against traveling to the US, and warned students of security risks related to studying in “certain US states” — a departure from Xi’s push to improve people exchanges. 

China was long a crucial market for US studios. After the first US picture was approved for release in the Asian nation in 1994, studios grew a dependence on that market for growth as the box office peaked in the West and streaming stole audiences. But in recent years, Chinese regulators have curbed access to their theaters, suggesting American titles don’t align with Communist Party values.

The number of approved US releases in China peaked at more than 60 in 2018 but has declined through 2021, according to data from the Chinese ticketing service Maoyan Entertainment. Both escalating trade and political tensions between the US and China and the popularity of local-language films in China have been headwinds for American film releases in the Asian nation.

Case in point: Deadpool & Wolverine opened at No. 1 in most countries in July. It opened at No. 2 in China, where the top grossing movie that weekend was the Chinese comedy Successor. After years of embracing Hollywood movies, the vast majority of China’s box office has been coming from homegrown pictures.

Recently film fans in the Asian nation have been raving about Ne Zha 2, a domestically made animated movie about a rebellious child fighting off monsters straight out of Chinese mythology. 

Policymakers’ push to boost domestic consumption, however, had sparked renewed optimism that Hollywood blockbusters may once again secure more screen time in the country.