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Having been attacked by some U.S. church groups over last year's controversial film Priest, the Walt Disney Co. is no stranger to protest. Now the company has incurred the wrath of a government. China's leaders hotly object to Disney's plans to distribute Kundun, a Martin Scorsese-directed film currently in production that tells the story of Tibet's exiled spiritual leader, the Dalai Lama. China's leaders get to play the villains, and they are not amused, to the point of making threatening noises about Disney's future in the great market of the future.

Last week Disney held firm and said it would release Kundun as planned next year. "Disney's potential business in China is infinite," says Peter Dekom, a former show-biz attorney who advises media companies operating in Asia. "But Disney had to decide whether it wants to facilitate business or stand for free speech."

Other media giants have already decided. Two years ago, Rupert Murdoch's News Corp. dropped the BBC's World Service Television news broadcast to China from its Asian satellite to placate Beijing. And sources told TIME that last year Universal Pictures--and reportedly other studios--turned down the chance to distribute Kundun for fear of upsetting the Chinese.

Some other coming attractions are bound to rankle the Chinese as well: Seven Years in Tibet, starring Brad Pitt as an Austrian adventurer who befriends the young Dalai Lama, and Red Corner, starring Richard Gere, a story about the Chinese judicial system. Gere, who is a longtime supporter of the Tibetan spiritual movement, applauded Disney's stance. He told TIME, "It's a bad precedent to be dictated to by a dictatorship. Disney made a good business decision. You have to play hardball with guys who only understand hardball."

Disney has become a major beneficiary of China's market liberalization. The Lion King brought in $3.6 million in China last year, and the sound track sold 1.4 million copies. There are three Disney boutiques called Mi Qi Miao Shijie (Mickey's fascinating world) and hopes for increased film distribution and possibly even a Disneyland China.

Liu Jianzhong, head of China's film bureau, and Shanghai Mayor Xu Kuangdi have each visited the U.S. and complained about Kundun. These kinds of culture clashes won't go away soon. "They don't have any idea what will happen once they become part of the world market," says Gere. "Russia learned how countries just can't pick and choose what they want to see--after MTV and cable TV come in, it all comes in. You can't hold back a flood."

--By Jeffrey Ressner/Los Angeles. With reporting by Jamie A. FlorCruz/Beijing