Things that came to mind when I saw this:
1. If this is not an Android rip-off, then it could be good for other mobile Linux efforts (Ubuntu, Jolla) since there is the higher probability that Chinese hardware manufacturers will be more open-source friendly. I don't think there is anything wrong with it being a "copy" or derivative of any Linux OS.
2. If you want to be "Big Brother", you need to control (or can snoop) the OS that your people use. Currently, I think Google is in the best position to be everyone's "Big Brother", whether you like it or not.
If COS is truly open source, then other developers can just make a derivative that don't have the peeping holes that may have been part of the COS-design.

In short, I think a government-backed, privately funded effort to develop an open source mobile Linux OS is good. I just thought others would share the same opinion on the matter.