I would take a somewhat less cynical view than @JamesK, who frames the matter as a Machiavellian motivated action in his answer, rather than as a legitimate ideological stance and policy with intellectual merit.
But, the bottom line is that the official doctrine of the Chinese Communist Party, which has been in place since its inception, which was central to the formation of the modern Chinese regime is that God and the supernatural do not exist. It is further committed, as a central aspect of its doctrine, to the position that religious activity has the potential to be actively harmful to society and to the the working people of the country, undermining their interests.
This doctrine has roots in Communist ideology pre-dating its arrival in China. It goes all of the way back to Karl Marx, who is the most important intellectual source of the ideas and ideologies known as Communism. See, for example, Karl Marx, Critique of Hegel's Philosophy of Right (1843), in which Marx wrote:
Religion is the sigh of the oppressed creature, the soul of a
heartless world, as it is the spirit of social conditions from which
the spirit is excluded. It is the opium of the people. The abolition
of religion as the illusory happiness of the people is the requirement
formulated by their real happiness. To demand that he renounce
illusions about his situation is to demand that he renounce a
situation that needs illusions. The criticism of religion is therefore
in germ the criticism of this valley of tears of which religion is the
Notably, freedom of religion was not widespread in the years when Marx wrote this, with most countries in Europe at the time having established religions, heresy laws, etc.
The U.S. had adopted its First Amendment freedom of religion at the time, but it had not yet been widely litigated, and was rarely practiced in Europe. The most bold experiment with a freedom of religion in Europe, in the French Revolution of 1789, had been repudiated and reversed by 1801. Revolutions carrying on that enlightenment spirit in 1848 across Europe, were short lived or failed entirely. Most Europeans only secured sustained democratic governance and freedom of religion in the last 19th century, when Marx, who died in 1883, was an old man, if they secured it at all.
The Constitution of China, enacted under pressure from international human rights movements informed by the success of freedom of religion in the U.S. in the post-World War II era, a century after this doctrine was firmly entrenched in Communist ideology, officially tolerates religious belief.
But, consistent with Communist Party ideology, it construed the freedom of conscience expressed in its constitution narrowly and views collective expressions of religious belief and religious organizations with skepticism as a possible threat to society and a possible threat to the working class people of the country. Therefore, it heavily regulates this kind of activity.