Warner Bros. (Time Warner) have announced on Wednesday that they will be withdrawing from their investment in cinema complexes through China, after a change to the foreign investment laws required Chinese interests to hold a majority stake.

The news, which was reported in various publications (china.org.cn, Herald Tribune) indicated that Warner had been allowed to hold a majority share of cinemas in major cities, resulting in them holding 51 percent investment with the rest held by Chinese investors. Yet changes in 2005 forbid foreign interests from holding a majority share of investment in cultural industries, of which cinema is included.

China is not the first country to restrict foreign participation on the basis of preserving cultural identity (Korea’s cinema quotas are one example, Australia’s local content requirements for free-to-air television broadcast are another), but it is questionable whether placing investment restrictions on foreigners at the distribution/exhibition level will boost the production and consumption of high-quality local content.

While the imperative to  promote and protect (to a degree) cultural heritage is understandable, restricting foreign investment is not necessarily going to deliver for local cultural industries. While I am not championing the interests of US-based multinationals, it could be easy for the actions of Chinese policymakers to be interpreted not only as a reversion to protectionism, but as a way of developing local industries by allowing foreigners to establish businesses only to force them into the hands of locasl – not by compulsory acquisition but by requiring Chinese interests to take a controlling stake.

Alternatively, news in the International Herald Tribune (from Bloomberg – link above) suggests that Warner may have another strategic interest in exiting the cinema business. In an effort to thwart bootleggers, Warner are considering releasing movies in China on DVD at the same time they screen in the US, indicating that they view cinema’s as an ineffective (or less profitable) distribution channel by which to exploit the earning potential of content they hold copyrights for.