As jokey as it sounds in principle, this is actually China's way of making life more difficult for Tibetan Buddhists generally and the Dali Lama specifically.

Here's an article that talks about the motivation of the Chinese government.

Experts and activists say the law is clearly aimed at excluding the exiled Tibetan spiritual leader, the Dalai Lama, from selecting reincarnated lamas or Living Buddhas - which form the core of Tibetan Buddhism's leadership.

Yup, that's the real core of the issue, which goes to show how scared the Chinese government actually is of the Dalai Lama.

Or Steven Segal

I was sort of hoping China would get around to making it illegal to put antifreeze in toothpaste or poison in animal food it exports to the U.S. before it passed this.