There's far more story behind this.
First, we've got to go back to the issues of Tibetan spiritual leaders, specifically the Dalai Lama and the Panchen Lama (who are essentially the two most important and influential spiritual leaders within Tibetan Buddhism). When the past Panchen Lama died, Tibetan spiritual leaders who were largely loyal to the Dalai Lama set out to identify the Panchen Lama's reincarnated form; after much searching, they found a child from a very traditional home whom they identified as the new incarnation of the Panchen Lama.
The Chinese gov't was worried that, coming from such a traditional home (and more importantly, being actively supported by the Dalai Lama and others loyal to him), the new Panchen Lama would grow up and take an anti-China stance. So they commissioned their own group of Tibetan Buddhists (these ones loyal to the Chinese government) who set out and identified their own reincarnation of the Panchen Lama. The Chinese government then declared that this was the true Panchen Lama, and the other was a fake (and the other child was taken into custody and remains in "protective custody" in Beijing to this day).
However, there was no legal basis for the gov't's decision or declarations in this matter, as there were no laws covering such a situation.
Now, it is no secret that the Dalai Lama is an old man, and will likely die sooner than later. And the gov't doesn't want the same problems when he dies, so they have set up a full "legal" procedure for designating any future reincarnations.
Now, before someone accuse me of being an apologist, I think this is absolutely absurd.
More importantly, so do by far the majority of the Chinese people. While this has gotten some minimal coverage in the Western media, in China it is big news, and tons of Chinese are condemning this decision as idiotic and illogical. The government is coming under considerable pressure for making such a declaration, and quite frankly is struggling to present a rational justification for it. Almost every day the newspapers and TV carry articles giving the government's rationalizations for this.
The first approach was "blame the West"...all the dissent and disagreement was blamed on western media and western agitators who sought to foment dissent in China. When it became blatantly obvious that most of the protests were because of grassroots Chinese movements (and that, in fact, the Chinese cared about it far more than most westerners did), the gov't took another tack.
Today, I was watching TV, and the official gov't line went something like this:
1) The Chinese Communist Party is officially atheist, and does not believe in reincarnation, period.
2) If reincarnation were real, those who were reincarnated would still be subject to the same laws and requirements as everyone else.
3) In China, it is illegal to gain political power through inheritance; that is too similar to the imperial system in which power was passed from father to son. Political power is gained by merit, and as a result of being duly appointed by legal government authorities.
4) The Dalai Lama and Panchen Lama are not just religious positions; they are also political positions. Therefore, a person cannot simply be illegally declared as the Dalai Lama and the Panchen Lama; they must be approved and appointed by the Chinese government, as must every other political position in the country.
And the last two points are really the core of the government's concerns, and the reason for this ruling. We see these "reincarnations" as being largely religious positions, which certainly cannot be decided by atheists who have no belief in that religion.
But the Chinese government sees these as political positions, and feels that it has the right to designate and/or approve any 'official' political post within China.
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