In the West, all sorts of data are already available to those with legitimate interests. Traffic data is used to optimise city planning; police can track your phone, with a warrant; power networks read your smart meter and so on. The key difference to the situation described in the OP is that there are controls around it.
In terms of reaping the benefits of AI, a willingness to discard privacy isn't as important as building the capability in data collection, warehousing, analytics, and so on. A lackadaisical attitude to privacy such as handing everything over to the private sector will just make it easier to commit all sorts of crimes: identity theft, blackmail, stalking, etc. Rather than a structural advantage to the Chinese system, it sounds more like technical (legal?) debt that may take years to pay back once it's acknowledged that privacy controls actually have a legitimate purpose.
As for the likelihood that these un-safeguarded powers will be abused for personal or political gain, well, like you said, technical/legal debt.
It highlights the disregard for individual rights and privacy. Giving your data away to a bunch of people trying to build new business is not something I want to be a part of.
Until it's not.
Good luck with that. It's not an easy problem.[1][2] AOL thought they were clever enough and release a bunch of search query data in 2006 only to find out it wasn't anonymous.[3]
1. https://en.wikipedia.org/wiki/K-anonymity