The World Trade Organization (WTO) has rejected China’s appeal against a ruling that it must stop forcing US content owners to use state-owned companies to distribute movies and books.

The ruling effectively breaks the monopoly that China Film Group Corporation and Huaxia Film Distribution, which is part-owned by China Film, currently have on the distribution of foreign films in China. Under current rules, the US studios usually take around 17% of the box office of revenue-sharing films.

However the WTO ruling, which was handed down in August and appealed by China’s Ministry of Commerce the following month, does not address China’s import quota of 20 revenue-sharing foreign films a year.

“With today’s rejection of China’s appeal, the WTO has taken a major step forward in leveling the playing field for America’s creative industries seeking to do business in China,” said Motion Picture Association chairman Dan Glickman (pictured) in a statement.

“In spite of all the restrictions we face, there is no shortage of US filmed entertainment in China. Unfortunately, far too much of it is pirated,” Glickman said.

China had argued in its appeal that it needed to impose controls on the market that are in line with the country’s stage of economic development, and to protect public morals.

The WTO judges agreed that China has the right to ban foreign films and books that government censors deem objectionable.

The ruling comes at a time when China’s theatrical market is expanding rapidly – box office is expected to grow by 40% to $882m this year. US movies such as Transformers 2 and 2012 have also seen big numbers in China this year, grossing around $60m apiece.

Meanwhile, local authorities are allowing Avatar to open in China at the beginning of January 2010 – a time that is usually reserved for local productions.