Replace the word "China" with "Sweden" and it starts sounding like reasonable policy.
The real goal is just as likely to be economic - a way to protect local businesses without actually calling it protectionism.
That's one-sided thinking. The goal may well be to make the data not subject to the (lack of) control of a foreign state, namely the United States in this case, but any foreign state in the general case.
In fact the EU already mandates similar restrictions for data of EU citizens and special provisions for EU-US data transfers:
https://ec.europa.eu/info/law/law-topic/data-protection/data...
Yes, one side I am interested in is my side. If I want to store my data in a different jurisdiction, because it is currently less interested in abusing my rights than the one my body physically resides in, I should have that option.
> In fact the EU already mandates similar restrictions for data of EU citizens
That's exactly my point. EU government might be currently less interested in explicit human rights violations than Chinese government, but their pattern of behavior is the same - "we own everything about our subjects, and won't let anybody - including subjects themselves - do anything to escape our control".