Kundun's troubles did not end with its release; in a sense, they began there. While the film was still in production, the Chinese government, which regards the 14th Dalai Lama as a separatist figure and disputes the legitimacy of Tibet's pre-1950 political independence the film assumes, pressured the Walt Disney Company, Kundun's distributor, to abandon the project entirely. Disney declined to cancel the film outright but gave it only a token release, two theaters, on Christmas Day 1997, a scheduling choice widely read as an attempt to minimize the film's visibility without formally breaking its commitment to release it.
Disney's then chief executive, Michael Eisner, later apologized to Chinese officials over the film during a visit to Beijing, and China barred Martin Scorsese personally from entering the country, a restriction that held until 2012, fifteen years later, when the release of his later film Hugo coincided with a thaw. Screenwriter Melissa Mathison faced the same ban, along with, for a period, her then husband, the actor Harrison Ford, despite Ford having no creative involvement in Kundun at all.
The episode became an early and frequently cited case study in how access to the Chinese market began shaping decisions inside major American studios well before streaming or blockbuster franchise economics made that dependence as visible and as widely discussed as it is today.