They are not deceiving themselves. Currently the world is too dependent on the US dollar and Euro, and because of that they abuse their powers. To create a world in which more major currencies compete against each other will lead to an improvement in this situation. Imagine this scenario, there are 10 currencies that each have 9% and the rest of the market share is shared by all other currencies. When there is so much competition it is a huge risk to abuse your power as you will erode your market share quickly because everyone has better and many alternatives to choose from. A digital Yuan will help them move towards this goal, and they have to do it in any case or they will be left behind.

That said, people have a generally world view of CBDCs. They do not compete with Bitcoin, they compete between the existing fiat currencies. So the Yuan CBDC would compete with other CDBD like the Euro one. Alternatively said this just increases the competition against fiat currencies, that is it.