Sure, Bitcoin/Crypto is a threat to all government regulated fiat currencies (yuan included), but it's still a very long way from actually threatening their model.

Won't be surprised if China actually pulls the plug on the miners though, since it doesn't bring about any economic benefits for China themselves at all. And they're always striving to control capital outflow and Bitcoin is arguably one of the tools that hampers their efforts.

If environment is an issue, I am of the opinion that they probably have bigger problems that they can tackle and it can bring about better benefits for much less effort (factories?)