Actually traditional martial arts were outlawed during the Cultural Revolution. Certain forms were allowed as a form of calisthenics for the shake of exercise and exhibition.

In the People's Republic of China (PRC), taijiquan was supported by Mao Zedong as part of his initiative to develop wushu (martial arts) as exhibition sports. All martial arts were standardised, and in 1956, the PRC government tasked a team of experts with the creation of the first ‘modernised’ taijiquan form, the ‘simplified 24-step Taijiquan’ (based on Yang style). The official face of taijiquan changed during the Cultural Revolution; practice was particularly difficult due to persecution of martial artists.14 As a result, many martial artists retreated to Taiwan with Chiang Kai-shek and to other Asian countries where there was greater freedom of practice. However, as Deng Xiaoping's rectification programme progressed in the late 1970s and 1980s, there was significant uptake of taijiquan in China.

https://read.dukeupress.edu/easts/article/2/4/525/25984/Globalisation-and-the-Internal-Alchemy-In-Chinese

In an radio interview conducted for BBC Radio’s Eastern Horizon programme, noted Chen Taijiquan teacher Chen Zhenglei explained: “The biggest setback for Tai Chi and all martial arts was during the Cultural Revolution when people were not able to practice freely and martial arts became outlawed. Tai Chi and other martial arts diminished in China. When China opened its gates again to the rest of the world, its rich culture was promoted and martial arts became standardised and simplified in the process. This had its pros and cons too, allowing more people to learn, but this ultimately diluted and changed the virtues of the traditional form”.

https://www.chentaijiquangb.com/jama-history

There's also this video discussing the subject.

Altogether, maybe the regime feared the possibility of a revolution and permitted only "government approved" martial arts?