By Fareed Zakaria, CNN

It is the perfect summer blockbuster for audiences around the world - action packed and not too taxing on the brain. The new Transformers movie broke the record for July 4th tickets sales in the U.S. and it's been smashing records in many of the 110 countries around the world where it's showing. It's already made almost half a billion dollars worldwide.

But there's one country that it's not playing in - China.

China doesn't want its people to see Transformers 3 - at least not yet.

Can you believe it? Beijing has imposed a moratorium on new foreign films.

For almost a month, no new blockbusters produced outside China have been released in China. Why? Well, instead of Transformers or Harry Potter, Beijing really wants its people to watch something else - something quite different.

The Beginning of the Great Revival released last month, is an extravagantly produced, state-sponsored propaganda movie, which cost $12 million to make, a fortune by Chinese standards. The film claims to have a cast of more than 100 top Chinese actors playing an array of historical figures.

Among them Mao Tse-Tung or Chairman Mao, who's portrayed not just a revolutionary, but also as a romantic. He's played by a young Chinese heartthrob. And while that might lure in female audiences, the real message isn't about love, but politics.

The film is a pean to the Communist Party, released to honor the 90th anniversary of its founding. It describes the party's influence as having led China down a glorious path of ethnic independence, liberation, national wealth and strength. No mention of the Great Leap Forward, the famine, the Cultural Revolution, or, of course, Tiananmen Square.

The Chinese Communist Party has made sure that this movie will be seen by its people. It's released Beginning of the Great Revival in more than 6,000 theaters accompanied with massive publicity.

By some reports the government expects it to make well over $130 million, twice as much as its last propaganda flick, The Founding of the Republic. And it has also gotten major Chinese corporations to rent out theaters and give employees tickets. Watching the film is mandatory for school children and so on.

So what do people think of the movie? Well, the ratings on Chinese websites have mysteriously been disabled, but if IMDB.com is any indicator, the film scored a two out of 10 rating which is pretty darn poor.

China's control over its movie industry actually raises much larger issues. Studio heads in Los Angeles salivate over the thought of China's 1.3 billion citizens turning into a Hollywood film buffs. There is already great interest in going to the movies in China. China is said to be building two new movie theaters everyday. But the Chinese government is not allowing market forces to determine who watches what movies.

You see, even when there's no blackout or moratorium, China allows only a limited number of foreign films in its theaters every year - about 20 - and even those are subject to strict censorship. And when the films are allowed in, foreign film studios are still stiffed. They reportedly get only 20% of Chinese ticket revenues, much less than they get anywhere else in the world. And, of course, there is massive piracy of DVDs, which the Chinese government does little to prevent.

China's attitude towards foreign movies is troubling because it points in two directions.

First, Beijing appears to be adopting a policy that favors local companies over international ones even if it deprives the Chinese consumer of choice, variety and quality. Businessmen from around the world in various industries have been complaining about such practices, many of which are potentially violations of free trade and of China's treaty obligations.

Second, Beijing seems to be turning in a nationalist direction - consciously promoting propaganda, keeping out foreign influences, all to create greater solidarity at home and legitimacy for the Communist Party. These are worrying tendencies which would cause friction between China and the world, and they are reversal of China's outward orientation over the last three decades - an orientation that has powered China's rise to wealth and prosperity.

But there is some good news. I like one strategy China is employing to promote its own movies.

You've probably heard of Kung Fu Panda. Well, the sequel to that film is out around the world, as every parent knows, and is doing especially well in China.

Beijing is hoping to counter Hollywood's success with the release this month of its own animated action flick. Legend of a Rabbit, the film is about a kung fu bunny, who takes on a big mean bad enemy. The enemy is a panda. Now, that's a fair fight, and may the best animal win.

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