Kenya's China Loan Revamp Sparks Interest in Yuan Switch Among Other Nations

Kenya’s decision to restructure its Chinese loans has caught the attention of several other debt-burdened countries. The move involved converting loans from US dollars to the Chinese yuan.

This change, combined with longer repayment periods and grace periods, saved Kenya about $215 million (Sh27.8 billion) annually in debt service costs. The development happened in 2025.

AidData, a US-based research group at the College of William & Mary, highlighted Kenya’s experience in a recent study. The report noted that the country’s widely publicised payment relief has sparked interest among other nations.

Ethiopia, Mozambique, Zambia, Pakistan and Indonesia are among countries reportedly considering similar switches to yuan-denominated loans. These nations are exploring alternatives to expensive dollar-linked financing.

AidData analysed global development finance, including Chinese lending. It also reviewed media reports for its findings. The study shows growing interest in reducing reliance on the US dollar for bilateral loans.

Kenya converted three Chinese railway loans from dollars into yuan. The restructuring included extended maturities and extra grace periods. This significantly lowered the country’s annual debt obligations.

The report sees Kenya’s move as part of a broader strategic shift by China Eximbank. The bank is encouraging — and sometimes requiring — borrowing countries to use the renminbi (RMB) instead of dollars.

This aligns with Beijing’s push to internationalise its currency in cross-border lending. Recent examples include deals with Sri Lanka and Bangladesh.

Ethiopia stands out as a strong candidate for similar relief. The country borrowed heavily from China to build its railway and is currently restructuring external debt.

AidData estimates that Ethiopia could save about $169 million by switching the benchmark rate alone. With Kenya-style full terms, savings could reach as much as $778 million.

However, the report cautions that switching to yuan is not risk-free. Borrowers must still source renminbi for repayments. Currency fluctuations and RMB liquidity could reduce the expected benefits.

The US dollar remains the dominant currency for most bilateral lending to developing economies. Despite this, more countries are exploring yuan options to cut borrowing costs.

Kenya’s experience demonstrates both the potential gains and the complexities involved. The restructuring helped ease immediate fiscal pressure while maintaining relations with a key development partner.

The developments reflect evolving dynamics in global development finance. Debt-laden nations are actively seeking more favourable terms from major lenders like China.

For Kenya, the loan revamp forms part of broader debt management efforts. It comes amid ongoing public debate about the cost and benefits of major Chinese-funded infrastructure projects.