It's actually extremely smart.

Latest and greatest China is able to make is reserved for the use of businesses and entities in the Chinese market.

Everyone else gets access to models of more limited capabilities.

It's basically the US strategy. Obvious difference being only that the Chinese allow on prem hosting of the lesser models. So plus one to them I guess.

If we want to move China or the US on from the whole, "super intelligence models for me, more limited intelligence models for everyone else" strategy, then "everyone else" will have to come up with some models competitive with the latest and greatest from the US and China. Absent that, there's just no pressure to bring the US and China to the "share the wealth" table.

Unfortunately, "everyone else" coming up with a competitive model is not gonna happen anytime soon.