I had never suspected that the Chinese word for “Chinese” has a foreign origin. But yes, it does. In fact, the same foreign word has been borrowed twice and yielded two different Chinese words, one of which is widely used as the ethnonym for “Chinese”.’“At any rate, the same word, or etymologically a homophonous loanword which came to be written with the same character, came to serve as the name of “us, Chinese”. According to Beckwith, in this meaning the term does not predate the Warring States period, the final part of the Zhou age (-5th to -3rd). At that time, knowledge was extant about distantly neighbouring countries, including Daxia 大夏, meaning “Greater Bactria” or “the Bactrian Empire”, i.e. Central Asia, then firmly held by the Iranian-speaking Scythians. These were a predominant influence from Croatia to Mongolia, where they imparted their lucrative knowledge of metallurgy and horse-training (Scythian legends pertaining to these skills were interiorized even by the Japanese). Their ancestral heartland was Bactria, i.e. present-day northern Afghanistan and southeastern Uzbekistan around the Amu Darya river (Greek: Oxus), an oasis friendly to agriculture and habitation amidst a harsh and inhospitable region.
The later Chinese tended to identify themselves with their ruling class. The Qin 秦dynasty (-3rd) yielded the international name China, Sanskrit Cīnā; the Han 漢 dynasty (-3rd to +3rd) lent its name to the usual self-designation of the ethnic Chinese as distinct from the minorities within China as “the Han”. It might be that a Chinese elite for some reason had identified itself with the expanding Scythians.”‘The origin of the words Xia 夏 and Hua 華 is the collective self-designation of the inhabitants of Bactria, a country of which the Greeks rendered the Iranian name as Ariana. This is still the name of Afghanistan’s air company. The Iranians called themselves Aiirya, corresponding to the form Ᾱrya in Sanskrit, Arus in Anatolian (Hittite). In each of these languages, it originally meant “us”, “one of us” (as against “them”), “fellow countryman”. Surrounding or subject nations, and finally the Iranians themselves, used the word as an ethnonym for the Iranians. Indeed, Iran comes from Aiiryānām Khšathra, “kingdom of the Iranians”. Whole article at INDIAFACTS.ORG