Kenya’s conversion of Chinese debt to renminbi reflects economic pragmatism more than strained US ties

Swap from the US dollar comes amid difficult relations with Washington but is primarily driven by the Kenyan government’s domestic economic and political concerns rather than marking a major de-dollarization shift.

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Published 5 November 2025 — 4 minute read

Image — Kenya's President William Ruto with China's President Xi Jinping in Beijing on 24 April 2025. Photo by IORI SAGISAWA/POOL/AFP via Getty Images.

Fergus Kell

Research Fellow, Africa Programme

Last month, Kenya’s treasury secretary John Mbadi announced that the country had converted three major Chinese loans from US dollars into renminbi. 

The original dollar loans were collectively worth $5 billion when agreed with China EXIM Bank in 2014–15. Their funds were used to pay Chinese contractors for construction of Kenya’s standard gauge railway connecting Mombasa with Nairobi and beyond. They remain Kenya’s largest ever chunk of loan financing for a single project.

While this is the first time that China has agreed such a currency conversion with an African country, Ethiopia’s move to initiate talks with Beijing on converting part of its debt suggests others may soon follow.

The loan conversion will likely be seen both as a sign of a Kenyan pivot towards China and as a milestone for Chinese efforts to internationalize its currency. The move comes as JD Vance reportedly plans to visit Kenya in late November – the first US vice president to do so since 2010 – and could be seen as exacerbating already-strained US-Kenya relations.

Such narratives, however, are too quick to attach wider geopolitical intentions to Kenya’s economic pragmatism, as well as premature in forecasting the dollar’s decline. 

Kenyan president William Ruto is pursuing interlinked goals of economic stability and political survival ahead of elections in 2027. With Kenya hit by the wider withdrawal of US initiatives in Africa, closer Kenya-China relations are primarily a reflection of the Kenyan government’s economic goals rather than a rejection of the US dollar. 

Kenya’s debt struggles 

The conversion of the outstanding loan principal of $3.5 billion is above all else a pragmatic move to reduce the pressure of Kenya’s debt burden, which nearly doubled as a share of GDP between 2013 and 2023.

China is by far Kenya’s largest bilateral creditor and is often portrayed as the main cause of these debt struggles, but commercial borrowing and multilateral loans each account for a higher overall share of Kenyan debt. 

However, China’s railway loans have proven to be far more costly than first envisaged because their interest rates have skyrocketed. Two of the loans were set at 3 and 3.6 per cent above the US market rate: when their five-year grace periods first expired in 2019–20 this meant a total interest cost of around 4 per cent, but by 2023 this had more than doubled.

The conversion into renminbi now shifts them onto China’s lower interest rate of 3 per cent. Together with reprofiled maturities, it is projected to save Kenya $215 million per year in servicing costs.

Kenya’s fiscal challenges, which led the government to attempt to impose higher taxes under IMF conditions, were a catalyst for a major youth-led protest movement in mid-2024. President Ruto’s government remains acutely aware of similar triggers and has scrambled to reduce liquidity pressures, which has also lessened the urgency to agree to a new IMF programme. 

Savings on interest costs with China are therefore just one element of Kenya’s strategy to manage its debt, which draws upon diverse international partnerships. Equally critical have been two $1.5 billion Eurobond issuances this year and a UAE-backed commercial loan facility.

China’s currency ambitions

Kenya’s loan conversion does also align with China’s ambitions, now increasingly clearly stated, to ‘promote the internationalization of the yuan’. But it is less clear that Kenya represents either a fully willing advocate or a model case for any broader de-dollarization agenda.

Kenya does already hold renminbi reserves, which might be reasonably estimated at around 10 to 15 per cent of total holdings. Yet the central bank governor has already been quick to reject any suggestion of increasing renminbi at the expense of dollars. 

Kenya’s debt conversion will do little to shift the renminbi’s low share of global reserve holdings, at just over 2 per cent according to the IMF. But a growing number of Kenyan commercial banks are now offering renminbi accounts, reflecting a wider trend of China’s currency increasingly being used for international trading. 

Closer Kenya-China relations are primarily a reflection of the Kenyan government’s economic goals rather than a rejection of the US dollar.

However, Kenya maintains a major trade deficit with China that is often a source of domestic frustration: in 2023 Kenyan exports to China were just $200 million against $3.2 billion in Chinese imports. 

China may need to allow its currency to strengthen to address its trade surpluses with the Global South, including Kenya. But in this scenario, if Kenya does not earn sufficient reserves of renminbi, it will remain reliant on exchanging its dollar inflows to cover the servicing costs of the loans, negating some of the savings made on interest rates. 

Beijing may see this as a positive incentive for Kenya to increase financing instruments and trade in renminbi. And Kenya has already floated the idea of a ‘panda bond’ – debt issued in China’s domestic market – to fund the long-awaited extension of the railway to the border with Uganda. 

But Kenya’s increased need for renminbi earnings will also intensify scrutiny of the existing trade deficit and the wider conditions that help sustain it, such as Beijing’s standards on agricultural imports or mandating the use of imported materials for infrastructure projects.

No room for US complacency

US-Kenya relations have been on a steady downward trajectory since the recent high-point of President Ruto’s state visit to Washington in May 2024. Tensions rose shortly after the visit as the Biden administration criticized the treatment of protestors by Kenyan security forces. 

Relations have since been aggravated by the Trump administration’s closure of USAID, the expiry of the African Growth and Opportunity Act (AGOA) – of which Kenya was one of the largest beneficiaries in Africa – and President Trump’s recent comments questioning the need for US military operations in Kenya and Somalia.

The US may need to offer more if it wants to dissuade Kenya from embracing further Chinese economic incentives.

But US economic fundamentals remain critical for Kenya. The US is by far the dominant source of remittances ($2.78 billion in 2024, over half of Kenya’s total), a cornerstone of the tourism industry, and a key export destination, essential for jobs in the textiles industry. These factors have helped Kenya to build some recent fiscal headroom and avoid a repeat of the Kenyan shilling’s dramatic slide in value in 2023–24. 

From Washington’s perspective, Kenya’s status as an anchor state in a turbulent region sharpens its importance as one of the US’s few remaining strategic interlocutors in Africa. But there should be no room for complacency. The US may need to offer more if it wants to dissuade Kenya from embracing further Chinese economic incentives.

Kenya has been pushing for a free trade deal with the US, especially since the AGOA expired in September, leaving Kenya’s important textile exports to the US subject to 10 per cent tariffs. Initial talks began during Trump’s first term and the issue will likely come up in Vance’s reported upcoming visit.

Ultimately, analysis of Kenya’s geopolitical leanings should start by considering domestic realities. Stabilizing the currency and inflation will not be enough for President Ruto’s campaign in 2027, as most ordinary Kenyans insist they are yet to feel any real benefit in their pockets.

With some debt pressures kicked down the road for now, the focus will switch to project delivery and jobs. It is here, more than global currency competition, that China’s influence may be increasingly felt if the US cannot offer concrete initiatives of its own.