Is this supposed to signal confidence in the chips already available on China's domestic chip market, or is it primarily aimed at boosting that market to make it ready?

Yes. :)

How big a deal is it to be on the cutting edge with this? Given that models seem to be flattening out because they can't get any more data, the answer is "not as much as you would think".

Consequently, a generation or 2 behind is annoying, but not fatal. In addition, if you pump the memory up, you can paper over a lot of performance loss. Look at how many people bought amped up Macs because the unified memory was large even though the processing units were underpowered relative to NVIDIA or AMD.

The biggest problem is software. And China has a lot of people to throw at software. The entire RISC-V ecosystem basically only exists because Chinese grad students have been porting everything in the universe over to it.

So, the signal is to everybody around this that the Chinese government is going to pump money at this. And that's a big deal.

People always seem to forget that Moore's Law is a self-fulfilling prophecy, but doesn't just happen out of thin air. It happens because a lot of companies pump a lot of money at the engineering because falling off the semiconductor hamster wheel is death. The US started the domestic hamster wheel with things like VHSIC. TSMC was a direct result of the government pumping money at it. China can absolutely kickstart this for themselves if the money goes where it should.

I'm really torn about this. On the one hand, I hate what China does on many, many political fronts. On the other hand, tech monopolies are pillaging us all and, with no anti-trust action anywhere in the West, the only way to thwart them seems to be by China coming along and ripping them apart.

I think those are both the case: they’re telling Chinese companies to invest in domestic hardware–implicitly also saying things like being prepared to stop using CUDA–and that means the hardware vendors know not to skimp on getting there (a nicer version of burning the landing boats on the beach).

It’s also an interesting signal to the rest of the world that they’re going to be an option. American tech companies should be looking at what BYD is doing to Tesla, but they’re also dealing with a change in government to be more like Chinese levels of control but with less maturity.

My cynical view is that it's mostly trade war and nationalism. If you follow the official PRC position, the chips are already made in China because TW is CN... Practically buying TW chips is boosting it's economy and hence funding it's military so from that perspective that makes sense. From long term development perspective this will absolutely boost national market... however that will take an insane amount of time. If you buy into AI is going to change everything hype, this move is a huge handicap and hence a boon to external economies. And I am probably missing a ton of viewpoints... politics meh