TEMPTED by the prize of a historic visit to China by Pope Benedict XVI, the nation’s leaders have authorised a renewed effort in confidential discussions with the Vatican to heal their rift and inaugurate diplomatic ties.

The talks have intensified over recent months, leading some diplomatic observers in Beijing to believe the Chinese may be seeking to announce a deal before the Olympic Games in August.

Liu Bainian, the de facto head of Beijing’s official Patriotic Church, has said on several occasions that he would like to welcome the Pope to China once an agreement has been reached.

While the Vatican says it has received no formal invitation, observers say Liu’s words would have been uttered only with approval from the highest levels.

The announcement of mutual recognition and a papal visit would be a propaganda coup for China. It would counter the negative publicity that has stunned Beijing recently, culminating in the decision by Steven Spiel-berg, the film director, to end his involvement with the Olympics over China’s policies in Sudan.

“The contacts are going ahead and we are somewhat optimistic,” a senior Vatican official said.

Both sides have maintained the utmost discretion, but sources close to the discussions, held in government buildings in Beijing, said they had reached a detailed and businesslike stage.

The senior Vatican official said any idea of a papal visit before the Games start on August 8 was “very unrealistic.” However, diplomats say the mere announcement of an agreement and a future visit would be enough to hand a public relations gift to China’s leaders.

The scene for a potential reconciliation between the Roman Catholic Church and the world’s largest officially atheist state has been set by a series of carefully managed moves.

There are at least 10m Catholics in China but their congregations are divided between the official Patriotic Association and an underground church whose members have endured martyrdom and imprisonment since the communist revolution in 1949.

Last June the Pope addressed a letter to Chinese Catholics in which he praised the devotion of the clandestine church but also urged reconciliation and unity among Christians.

The letter reiterated the need for obedience to the Vatican, which some officials in Beijing interpreted favourably as a sign that the Pope wanted to bring the underground clergy into line for a change in policy.

In September the Vatican and China appeared to have agreed on the appointment of a new Bishop of Beijing, Li Shan. His installation was a signal that an accommodation could be reached on the most difficult issue between Rome and Beijing, the power to appoint clergy.

In 1951 the Communist party’s central committee made Chinese control of the church a fundamental tenet of its rule, stating that “foreign invaders and spies in religion must be rooted out”.

On December 18, 2007, the politburo convened for what party historians say was its first meeting wholly devoted to a collective study session on religion. President Hu Jintao and the most powerful men in China sat through two expert presentations explaining Christianity and traditional Chinese beliefs.

In its Chinese-language report Xinhua, the state news agency, gave a dispassionate account of the proceedings with none of the customary abuse of religion as a feudal remnant or an opiate of the people. Equally unprecedented were Hu’s own remarks to the meeting, which diplomats say were probably intended for scrutiny by the Vatican.

“The party and government shall reach out to religious believers in difficulties and help them through their problems,” he said. “We shall fully understand the new problems and challenges to manage religious affairs so that we can do it right.”

The president acknowledged that religions had been a constant presence in the nation and praised the role they could play in social stability and harmony.

The pace quickened in late January when Liu Jianchao, the foreign ministry’s spokesman, said: “China is constantly thinking hard about improving the relationship with the Vatican. We have already made a lot of effort and we are willing to keep in touch, talk to the Vatican and actively seek approaches to improve relations.”

There have also been silent signals from the Vatican. It has made it known that Cardinal Joseph Zen of Hong Kong, long the fiercest critic of the official church and an outspoken advocate of democracy and freedom, is to retire in just over a year.

Zen is said by church sources in Hong Kong to have argued for extreme caution and against any haste in making a deal with China. But some in the Vatican see the greatest opportunity to bring Christianity to China since the days of the first Jesuit missionaries centuries ago.

The Pope’s diplomats have also made it clear that the other principal obstacle to mutual recognition – the Vatican’s link to Taiwan – can be resolved.

To the great dismay of many Chinese Catholics, the Vatican is prepared as part of an eventual settlement to move its embassy from Taipei to Beijing.

“There is no problem with breaking relations with Taiwan and we are happy not to interfere [in China’s internal affairs], but we have a duty to spread the values of the gospel,” a senior Vatican official said.

1692 Kangxi Emperor issues edict of toleration for Christians; missionaries can stay in China if they accept his supremacy

1951 Revolutionary government of Mao Tse-tung takes control of church; foreign clergy expelled.

1989 Chinese leaders denounce role of Polish church in fall of communism; restrictions tightened.

2005 Pope Benedict XVI succeeds John Paul II, dialogue begins a fresh start.

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