China’s foreign exchange regulator has issued informal guidance to banks directing them to promote currency hedging among corporate clients, according to people familiar with the matter. The instructions, conveyed through local branches of the State Administration of Foreign Exchange (SAFE), aim to shield exporters from losses related to the yuan’s strengthening against the dollar. The yuan has risen 4.3% during the year and is trading near a four-year high, prompting regulatory concern about the impact on export-oriented businesses.
The guidance encompasses recommendations to increase hedging ratios, or the proportion of clients’ currency exposure that is protected through financial instruments. Some SAFE branches have provided subsidies to companies that expand their hedging activities, including assistance with currency options premiums. Banks operating in regions with lower trade activity were directed to align hedging ratios with the national average, while lenders in major export-oriented coastal provinces were encouraged to push ratios toward 40% or higher.
Data from SAFE indicated that corporate foreign exchange derivative contracts reached approximately $1.4 trillion in the first half of the year, representing roughly a 40% increase from the equivalent period a year prior. The nationwide foreign exchange hedging ratio reached 35.3%, climbing 5.3 percentage points from the end of 2025. Despite these increases, analysts noted that foreign exchange losses during the first half of the year reached their highest level in a decade at around 70 billion yuan, equivalent to 4% of total earnings among affected companies.
The export sector has remained a significant contributor to China’s economy amid broader economic headwinds, with particular strength in high-technology and artificial intelligence-related products. While market observers anticipate that yuan appreciation may moderate, the regulatory push for expanded hedging reflects policymaker concerns about sustained currency volatility and further potential appreciation.
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