China says citizens now enjoy religious freedom, as enshrined in the constitution -- but it comes with caveats.
The regulations, Human Rights Watch notes, require that religious organizations and believers must "safeguard the nation's unity, ethnic solidarity, and social stability" and eschew "foreign domination."
Religious activities should observe the constitution, laws and regulations, and safeguard the nation's unity, ethnic solidarity, and social stability. No organizations or individuals should interfere with the state's administration, the judiciary, or education.
International rights groups complain that Chinese officials continue to detain religious believers, close religious sites, and impose arbitrary restrictions.
Over the past eight years during Pope Benedict's papacy, the two sides have made attempts to break the impasse but only with modest success.
In 2005, Pope Benedict met with members of the China Disabled People's Arts Troupe who were touring Rome at the time.
In a pastoral letter issued on May 20, 2007, the pope expressed understanding about the complicated situation of the church in China and offered guidelines for pastoral life.
He expressed a "willingness to engage in respectful and constructive dialogue" with China, while calling for defense of the doctrines and tradition of the Catholic Church.
The pope, in the letter, also dedicated May 24 as a day of prayer for the church in China - and in the same year set up a special commission on affairs related to the church in the country.
In 2008, the Chinese Philharmonic Orchestra and the Shanghai Opera House Chorus visited the Vatican and performed in front of the pope. It was hailed as an ice-breaking event.
Still, major sticking points remain.
While China may allow Chinese Catholics to practice their faith and accept the pope's spiritual leadership, it also tells the Vatican not to "interfere in China's internal affairs," including the matter of ordaining Chinese bishops.
China in recent years has ordained new bishops without the pope's approval, stalling efforts of restoring diplomatic relations between China and the Vatican.
Many local Catholics, caught in the middle, say they hope the government will respect the universal traditions of the Vatican.
At the same time, they hope the Vatican can better understand the church in China and reach reconciliation with Beijing.
"We follow China and we also follow the Roman Catholic way," said Father Zhang, who for years attended an underground church before joining the mainstream "patriotic church."
But no breakthroughs are expected any time soon.
The incoming pope will have little room to tweak the "ambiguous but still conservative line" pursued by Pope Benedict because the hardliners in the Vatican are simply too strong, said one analyst who spoke to CNN on condition of anonymity because of the sensitivity surrounding religious issues in China.
If the new pope takes a more conciliatory line on China, he added, his credibility could be questioned by the hardliners.
Chinese communist leaders, on the other hand, are still struggling with how to deal with this unpredictable religious boom.