China wields lending influence to globalize the yuan
China is forcing the game to change. As the world’s largest lender, Beijing is now handing out favors… with strings.
Countries deep in debt to China are being nudged into ditching the dollar, not by force, but through a well-timed play: offering cheaper financing in yuan, China’s own currency. That’s exactly what Ethiopia is now doing.
This week, it started talks to convert part of its $5.38 billion debt into yuan-denominated loans.
And Ethiopia isn’t alone. Others are already in. Kenya said earlier this month it shaved $215 million off annual debt payments after converting Chinese railway loans from dollars to yuan. “If the borrowers pay less, then the lender gets less,” said Michael Pettis, senior fellow at Carnegie Endowment. “The benefit for China in exchange for less revenue is that the renminbi becomes a more internationally-used currency.”
Beijing cuts revenue to push yuan deeper into trade and debt
This whole strategy, swapping dollar loans into yuan, means China is taking a loss upfront. But long-term, it lets Beijing get what it really wants: more global use of its currency. According to Bloomberg, the goal is to help countries use yuan to pay for Chinese goods, and push the currency into trade settlement and financing.
The deal structure isn’t just for Africa. These conversions could soon stretch to countries across Asia, Eastern Europe, and beyond.
“China’s concern is that US control of the main international currency gives it strategic leverage,” Pettis added. Basically, Beijing doesn’t want to keep playing on America’s field. This push helps it blunt Washington’s grip on global finance.
China’s economic slowdown, low interest rates, and persistent deflation make its money cheaper. The U.S., still stuck with higher rates, makes the yuan more attractive to borrowers.
And after Trump’s chaos tariffs, erratic policy, and record high U.S. debt, some investors just want out of the dollar.
This year alone, Hungary and Kazakhstan sold yuan bonds, while Sri Lanka took a $500 million yuan loan for a highway project. Indonesia is now planning its first offshore yuan bond. As of October, over 68 billion yuan ($9.5 billion) in debt and loans had been issued, twice what was done in all of 2024, Bloomberg data shows.
Zambia, another country drowning in Chinese debt, is watching closely. “Anything that reduces the debt burden of Zambia—saves money in a true sense—that is something that is of course always interesting,” said Finance Minister Situmbeko Musokotwane. No decision yet, but eyes are locked on Kenya’s deal.
China expands yuan ecosystem through swaps, bonds, and fast payments
Beijing’s Foreign Ministry hasn’t confirmed anything directly, but said it wants “practical cooperation” with African nations and plans to help them achieve “independent and sustainable development.” In the background, about 30 countries now have bilateral currency swap deals with China’s central bank, helping local banks access yuan more easily.
“China is trying to establish an ecosystem for the yuan with more scenarios where it can be used,” said Ding Shuang, chief economist for greater China at Standard Chartered. That means more trade in yuan, more countries holding it, and more financial products priced in it.
The opportunity is massive. According to Kevin Gallagher of Boston University, the world’s 78 poorest countries owe around $67 billion to China. That’s a lot of leverage. “If China refinances its debt to countries for longer terms and lower interest rates, it will give these countries much-needed fiscal space,” Gallagher said.
Even with all this, results have been mixed. Capital controls and strict management of the exchange rate have limited how far the yuan can go. But China isn’t standing still. The PBOC has opened up access to its repurchase markets, launched a fast payment system with Hong Kong, and kept its currency stable even with low yields.
Meanwhile, the dollar has lost 7.5% of its value this year. Its status as a safe haven is under pressure. Trump’s tariffs and the U.S. debt pile are only making things worse. And China? It’s buying gold, hedging, and slowly de-dollarizing. “China and other non-Western countries will find ways to incrementally reduce their reliance on the dollar,” said Gabriel Wildau of Teneo. “Yuan payments are becoming an increasingly viable backup option.”
Beijing’s endgame is to break the current dollar monopoly and build a multi-currency world. A world where yuan has real power. PBOC Governor Pan Gongsheng wrote recently that the system could “evolve toward a structure where a few sovereign currencies coexist, compete, and counterbalance each other.”
Still, not everyone’s convinced. “This interest rate configuration is unlikely to remain unchanged forever,” said Louis Kuijs, chief Asia-Pacific economist at S&P. “Other factors are needed to drive a comprehensive structural trend towards yuan internationalization, including easier access for foreigners to China’s financial markets.”
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