BEIJING, Nov. 10 -- Time Warner Inc is pulling out of the cinema market in China because of a rule change that bars it from owning a controlling stake in its ventures.

    "Time Warner's withdrawal from the market could lower the confidence of foreign-invested companies to enter the fast-growing Chinese entertainment market," said Wang Tianyun, vice-president of the Shanghai Film Group Corporation.

    Time Warner established Shangying Warner Cinemas, the first foreign-owned cinema in China, in 2003, encouraged by a temporary government policy allowing foreign investors to own up to 75 per cent of total registered capital in seven trial cities including Shanghai, Beijing and Guangzhou.

    But at the end of 2005, the Chinese Government issued a new set of rules barring foreign investors from owning a majority stake in joint-venture cinemas.

    "The company has no choice but to pull out," Gao Ming, a spokesman for Time Warner, was quoted by Bloomberg as saying. "It didn't pull out immediately after the rule change because of its long-term commitment to its partners."

    Wang said the policy was designed to protect locally produced films. "Conflicting interests exist between foreign and domestic investors," said Wang. "Foreign companies want to screen foreign-produced films to make money while shunning homemade cultural films."

    Time Warner unit Warner Brothers International Cinemas Inc entered China in 2002, the first foreign entertainment firm to invest in the Chinese market.

    Warner Brothers currently operates six cinemas with local partners. It had planned to expand to more than 30 cinemas in the next few years.

    Other foreign investors in China's entertainment industry include Walt Disney Co, Viacom Inc and Eastman Kodak Co.

    There are 37 cinema chains operating in China. Last year, ticket sales for China's cinema industry climbed 30 per cent to 2 billion yuan (US$253 million). "Ticket sales this year are expected to reach 2.7 billion (US$341.8 million)," said Wang.

    Time Warner teamed up with the Shanghai Film Group in 2002 to establish Yonghua Cinema City, with a 49 per cent share of registered capital.

    Its withdrawal from the market leaves Shanghai Film Group searching for a new partner. "Many companies are now in discussion with our group for a partnership," said Wang.

    Time Warner will retain its other services in China, including a home video joint venture and consumer products, a company spokesman said.