...They do even create digital yuan which do signifies that they are sticking with centralization...
Digital yuan is another form of money and is in circulation along with cash and non-cash yuan. Therefore, a centralized digital yuan cannot compete with a decentralized bitcoin, despite all the restrictions imposed by the Chinese government. But the citizens of this country will have to comply with government decisions if they want to be law-abiding.
Exactly, this is just another form of protectionism and nothing more, the Chinese government knows that if they actually let people choose between their digital currency and bitcoin they will choose bitcoin, in almost any other industry or business this will force the company at a disadvantage to improve their product or to lose against the superior option, but we are taking about governments here, and they make the rules so it is obvious they are trying to rig the game in favor of their currency, and even then I do not think this is going to be enough to help them win the war against bitcoin.