James Cameron's Avatar has struck a chord with Chinese moviegoers. ((Twentieth Century Fox))

China's government has reminded theatre operators to obey a quota requiring at least two-thirds of the movies they screen to be domestically made after the Hollywood blockbuster Avatar became the highest-grossing film in the country's history.

James Cameron's 3-D sci-fi epic has grossed about $103 million US as of Jan. 12.

Theatres said they were ordered to remove the 2-D version of the film in an apparent effort to reduce competition for China's homegrown films like a state-backed biopic of Confucius, which brought in a lacklustre $5.6 million US during its opening weekend.

China remains highly protective of its domestic film industry and permits just 20 revenue-sharing film imports each year. The restriction amounts to a limit on foreign blockbusters that are typically distributed under revenue-sharing deals.

That has not dampened China's enthusiasm for Hollywood films, however. Avatar has smashed the box-office record of $67.3 million US set by 2012 in December. The disaster movie broke the previous record of Transformers: Revenge of the Fallen.

Transformers in 2009 surpassed an 11-year-old record held by another Cameron epic: Titanic.

This week, China's State Council website posted a statement that theatre operators should support the "expansion and development of the domestic film industry" and that no less than two-thirds of movies shown each year should be domestic. The quota represents a longstanding order.

Restriction criticized by WTO

China's restriction of movie imports has been taken up by the World Trade Organization. In December, the WTO upheld an earlier ruling that China is illegally restricting music, film and book imports from the U.S. The original ruling didn't address the 20-movie limit, but urged Beijing to let foreign companies distribute their entertainment products in China.

Recently, demand has grown for some domestic movies. The Chinese propaganda movie The Founding of a Republic made $61 million US in early 2009, not far behind the record takings of 2012 and Transformers.

But Avatar's 3-D experience, and its plot, have struck a chord with Chinese viewers.

The movie revolves around the forced evictions of the alien Na'vi race by humans, a storyline that some have said draws unflattering comparisons to China's own, often brutal removal of millions of residents to make way for property developers.

Avatar passed Titanic to become the highest-grossing film worldwide, bringing in $1.859 billion US at the box office, 20th Century Fox said Tuesday. On the weekend, it also become the highest-grossing international film (a figure that counts regions outside of North America).

The reason for 2-D screenings being scrapped in China is a little unclear.

Movie theatre operators have said they were ordered to pull the version, though Zhang Hongsen, deputy head of the State Administration of Radio, Film and Television, denied that. 

Weng Li, spokesman for the film's state-run distributor, China Film Group, which decides which movies to import, said select movie theatres did so for commercial reasons.

"Avatar 2-D makes up for little more than 5 per cent of all Avatar revenue. Everyone wants to watch it in 3-D," Weng said.

"It's natural for movie theatres to pull movies that aren't doing well and replace them with more promising ones — in this case, Confucius."