Earlier quoted context omitted.
Replace the word "China" with "Sweden" and it starts sounding like reasonable policy.
No it does not. Sweden probably is less likely to horribly abuse the data to incarcerate and execute citizens for disagreeing with the government, but the goal of the policy would be the same - to make all data about the person subject to the state's control. Swedish government might not be abusing this control right now, but nobody can guarantee it won't in 15 years.
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...