China's foreign exchange regulator has instructed banks to encourage more corporate clients to hedge currency risks, people with knowledge of the matter said, stepping up efforts to shield exporters from the yuan's steady appreciation.
The informal instructions, known as window guidance, were issued in recent months, the people said, underscoring the authorities' concerns about foreign exchange losses among exporters, one of the few bright spots in an otherwise sluggish economy.
The move also suggests policymakers want companies prepared for further gains, or greater volatility, in the yuan which has risen 4.3 percent 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.
The message was conveyed to banks by local branches of SAFE, the people said, urging lenders to raise foreign exchange hedging ratios, or the proportion of clients' currency exposure that is protected.
Some SAFE branches provided subsidies to companies that stepped up their hedging, including covering part or all of their currency options premiums, one of the sources said.
Some banks in provinces with relatively weaker trade activity were asked to raise hedging ratios to the national average level, while lenders in export-oriented coastal provinces were encouraged to push ratios to around 40 percent or higher, the sources added.
All of the sources requested anonymity because they were not authorised to discuss the matter publicly.
Chinese companies have rushed to derivatives for protection from currency exposure 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 US$1.4 trillion in the first half of this year, up about 40 percent from a year earlier, while the nationwide FX hedging ratio hit 35.3 percent, up 5.3 percentage points from the end of 2025, SAFE data showed.
China's vast export sector is humming, buoyed by strong appetite for high-tech and AI-related products and providing vital support for an economy weighed down by sluggish domestic demand.
Market participants expect yuan gains to slow, but they have hurt exporters, with analysts at Goldman Sachs finding foreign exchange losses in the first half of this year hit their highest in a decade at around 70 billion yuan or 4 percent of total earnings.
"However, these losses have remained manageable given the substantial earnings growth generated by these export-oriented companies," they added in a note published last week.
Reuters
