Key facts
- China's foreign exchange regulator has urged banks to encourage corporate clients to increase currency hedging.
- The yuan has appreciated 4.3% this year and is trading near a four-year high against the dollar.
- Total foreign exchange derivative contracts signed by corporates reached nearly $1.4 trillion in the first half of 2023.
- The nationwide FX hedging ratio reached 35.3% in the first half of 2023, up 5.3 percentage points from the end of 2025.
- Goldman Sachs analysts found foreign exchange losses for exporters in the first half of 2023 hit their highest in a decade, around 70 billion yuan.
China's foreign exchange regulator has issued informal instructions to banks, urging them to encourage corporate clients to increase their hedging against currency fluctuations, according to sources familiar with the matter. This move aims to protect exporters from the impact of the yuan's steady appreciation.
The guidance, known as window guidance, was conveyed in recent months by local branches of the State Administration of Foreign Exchange (SAFE). It underscores authorities' concerns about foreign exchange losses among exporters, which are a vital support for China's economy amid sluggish domestic demand. The yuan has risen 4.3% this year and is trading near a four-year high against the dollar.
Some SAFE branches have reportedly offered subsidies to companies that increased their hedging activities, covering part or all of their currency options premiums. Banks in provinces with weaker trade activity were asked to meet the national average hedging ratio, while those in export-oriented coastal regions were encouraged to push ratios to around 40% or higher.
Chinese companies have increasingly turned to derivatives to manage currency exposure. In the first half of this year, the total value of foreign exchange derivative contracts signed by corporates reached nearly $1.4 trillion, a 40% increase from the previous year. The nationwide FX hedging ratio stood at 35.3%, up 5.3 percentage points from the end of 2025. Analysts at Goldman Sachs noted that foreign exchange losses for exporters in the first half of 2023 reached approximately 70 billion yuan, or 4% of total earnings, though these losses remained manageable due to substantial earnings growth.