China's foreign exchange regulator has told banks to push more corporate clients toward currency hedging as the yuan's steady climb squeezes exporters, Reuters reports. Local branches are urging lenders toward higher hedging ratios, with coastal exporters pushed toward around 40% or more.
China's foreign exchange regulator has instructed banks to encourage more corporate clients to hedge currency risk, according to people with knowledge of the matter cited by Reuters. The informal instructions, known as window guidance, were issued in recent months.
The guidance underscores authorities' concerns about foreign exchange losses among exporters, one of the few bright spots in an otherwise sluggish economy.
Yuan Trades Near a Four-Year High
The move suggests policymakers want companies prepared for further gains, or greater volatility, in the yuan, which has risen 4.3% this year and is trading near a four-year high against the dollar. Bloomberg News first reported the extension of the hedging drive. Financial regulators did not immediately respond to a Reuters request for comment.
Banks Told to Raise Hedging Ratios
Local branches of SAFE, China's foreign exchange regulator, conveyed the message to banks, urging lenders to raise their foreign exchange hedging ratios — the proportion of clients' currency exposure that is protected. Some SAFE branches provided subsidies to companies that stepped up hedging, including covering part or all of their currency options premiums, one of the sources said.
Banks in provinces with weaker trade activity were asked to raise hedging ratios to the national average, while lenders in export-oriented coastal provinces were encouraged to push ratios to around 40% or higher, the sources added. All of the sources requested anonymity because they were not authorised to discuss the matter publicly.
Derivative Use Jumps as Volatility Builds
Chinese companies have rushed to derivatives for protection as a rising yuan has hurt some exporters for months and, more recently, as the war in Iran has ramped up volatility. The total value of foreign exchange derivative contracts signed by corporates reached close to $1.4 trillion in the first half of this year, up about 40% from a year earlier, while the nationwide FX hedging ratio hit 35.3%, up 5.3 percentage points from the end of 2025, SAFE data showed.
China's export sector is humming, buoyed by strong appetite for high-tech and AI-related products, providing support for an economy weighed down by sluggish domestic demand.
Exporters Absorb Decade-High FX Losses
Market participants expect yuan gains to slow, but the currency's rise has hurt exporters. Analysts at Goldman Sachs found foreign exchange losses in the first half of this year hit their highest in a decade at around 70 billion yuan, or 4% of total earnings. According to Reuters, the analysts wrote in a note published last week: "these losses have remained manageable given the substantial earnings growth generated by these export-oriented companies".
Source: Investing.com
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