China urges banks to increase currency hedging for exporters

China’s foreign exchange regulator, the State Administration of Foreign Exchange (SAFE), is issuing informal guidance to banks to encourage corporate clients to increase currency hedging. This move aims to protect exporters from potential losses caused by a strengthening yuan, which has risen 4.3% during the year and is trading near a four-year high.

Regulators are using “window guidance” to direct banks, particularly in export-heavy coastal provinces, to push client hedging ratios toward 40%. The national corporate foreign exchange hedging ratio reached approximately 35.3% in the first half of the year. To reduce costs for businesses, the People’s Bank of China (PBOC) has cut the forex risk reserve requirement from 20% to 0%.

Despite rising hedging volumes, corporate foreign exchange losses reached approximately 70 billion yuan in the first half of the year, marking a decade-high level.