In the first half of the year, the contracted scale of companies using foreign exchange derivatives to manage exchange rate risk approached 1.4 trillion U.S. dollars, representing a year-on-year increase of 40%.
With the Chinese yuan experiencing moderate appreciation, how export enterprises can effectively conduct this defense of their exchange rates is becoming a critical question they must face directly.
"Since the beginning of this year, amid a complex and volatile external environment, China's foreign exchange market has operated with overall stability, with two-way fluctuations in the yuan exchange rate increasing. We have observed that companies' awareness of actively managing exchange rate risk has further improved, and they have adopted various methods to strengthen exchange rate risk management," stated Li Bin, Deputy Head of the State Administration of Foreign Exchange, at a press conference on July 17th.
Official data clearly reflects the ongoing expansion of corporate risk hedging coverage. In the first half of this year, the contracted scale of companies using foreign exchange derivatives to manage exchange rate risk approached 1.4 trillion U.S. dollars, a 40% increase year-on-year. The corporate foreign exchange hedging ratio reached 35.3%, up 5.3 percentage points compared to the full year 2025. In the first five months, the proportion of cross-border trade settled in yuan was approximately 30%.
Overall, against a backdrop of intertwined domestic and international factors and the continuous improvement of the foreign exchange regulatory framework, market expectations for the yuan exchange rate have become more rational. The risk of significant one-sided fluctuations in the yuan exchange rate has notably decreased, and it is expected to continue its two-way fluctuation pattern going forward. Regular and professional exchange rate risk management will become a key tool for foreign trade enterprises to operate steadily.
Diversification of Hedging Methods
This year, two-way fluctuations in the yuan exchange rate have intensified. In response to changing market conditions, domestic enterprises' awareness of proactively guarding against exchange rate volatility risks has continued to rise, and their hedging methods have become more diverse.
Li Bin explained that companies currently employ various methods for exchange rate risk management. Some firms have both foreign exchange income and expenditures; after offsetting their foreign exchange receipts and payments or their foreign exchange assets and liabilities, they can achieve a degree of natural hedging, mitigating the impact of exchange rate fluctuations. Other companies use yuan for pricing and settlement to avoid the foreign exchange risk exposure arising from currency mismatch. Yet others utilize foreign exchange derivatives to lock in exchange rates in advance, reducing the impact of exchange rate fluctuations on their business operations.
To guide enterprises in rationally responding to two-way exchange rate volatility, the State Administration of Foreign Exchange has continued to enhance supporting services for exchange rate hedging and promote the concept of exchange rate risk neutrality.
"Exchange rates are determined by market supply and demand and are very difficult to predict," Li Bin emphasized. In recent years, as two-way fluctuations in the yuan have increased, it is even more crucial for companies to adhere to the principle of exchange rate risk neutrality, focus on their main business, and proactively take measures to manage exchange rate risk, minimizing the impact of exchange rate volatility on core operations and corporate finances.
Simultaneously, regulatory authorities have been continuously building bridges between banks and enterprises, facilitating the connection between hedging service supply and demand. Currently, 130 major Chinese and foreign banks are able to conduct foreign exchange derivative business for companies.
Li Bin noted that there is a learning process for companies regarding bank-offered foreign exchange hedging services, and banks also need to understand each company's foreign exchange business situation and hedging needs. To bridge the information gap between banks and enterprises, the State Administration of Foreign Exchange has established and is continuously improving a database of companies involved in foreign-related activities, which now includes 290,000 foreign trade firms in its service list.
Addressing pain points reported by companies, such as cumbersome hedging procedures and high thresholds, the State Administration of Foreign Exchange has introduced multiple facilitation policies.
For instance, it has simplified the documentation review requirements for banks when processing foreign exchange derivative transactions for companies, enhancing the timeliness and convenience of such transactions. It has also encouraged banks to continue efforts in innovating foreign exchange derivatives, expanding online transaction channels, and strengthening the service capabilities of their grassroots branches, making it easier for companies to engage in exchange rate hedging. Furthermore, it has continued to reduce or waive fees related to exchange rate hedging services that banks provide to small and medium-sized enterprises.
Sustained Two-Way Fluctuations for the Yuan
Since the beginning of 2026, despite a generally volatile but strengthening U.S. Dollar Index, the yuan exchange rate has still appreciated noticeably. By the end of June, the yuan had appreciated by 3% against the U.S. dollar compared to the end of the previous year. Over the same period, the CFETS (China Foreign Exchange Trade System) RMB Index, which reflects changes in the yuan's value against a basket of currencies, appreciated by 4.7%.
"This is the result of supply and demand in the foreign exchange market and also reflects increased market confidence in China's macroeconomic performance. Currently, the yuan exchange rate against the U.S. dollar is operating around 6.8, roughly at the median level of recent years," stated Zou Lan, Deputy Governor of the People's Bank of China, recently.
This year, driven by high global capital expenditure in the AI sector, China's exports have continued to exceed expectations with strong growth, and the trade surplus has also remained at a high level. Concurrently, in the first half of the year, the surplus from foreign exchange sales and purchases by banks in China reached 271.2 billion U.S. dollars. The trade surplus and corporate foreign exchange settlements have provided strong support for the yuan exchange rate.
Looking at recent months, the surplus from bank foreign exchange sales and purchases in May was 35.8 billion U.S. dollars, down 11% month-on-month. In June, influenced by a rebound in the U.S. Dollar Index and a phase of yuan correction, corporate behavior of selling foreign exchange at higher rates increased, driving the surplus for that month significantly higher to 56.6 billion U.S. dollars.
Li Bin noted that since July, foreign exchange settlements and purchases have been roughly balanced. In the first half of the year, the settlement ratio for foreign exchange income, which measures the willingness to settle foreign exchange, was 65%, while the purchase ratio for foreign exchange expenditures, which measures the willingness to buy foreign exchange, was 61%, showing little change compared to 2025. These data indicate that the foreign exchange settlement and purchase behaviors of entities like companies and individuals have been generally rational and orderly.
Currently, uncertainties remain regarding the trajectory of global inflation and overseas monetary policy paths. How will the complex external environment affect the yuan exchange rate going forward? Looking ahead, the factors influencing the yuan exchange rate are multifaceted, with both appreciation and depreciation drivers coexisting.
Zou Lan expects the yuan exchange rate to continue its two-way fluctuations. Internationally, geopolitical risks are prominent, and monetary policies of major economies remain uncertain. Domestically, China's economic fundamentals are stable and improving, high-quality development is advancing continuously, the resilience of the foreign exchange market is constantly strengthening, and the ability of market participants to adapt to exchange rate fluctuations is gradually increasing.
Li Bin emphasized the need to continuously monitor changes in global geopolitics, economic growth, inflation, and monetary policies of major economies. Efforts will be made to strengthen monitoring of cross-border capital flows, continuously enhance the resilience and vitality of the foreign exchange market, steadily improve macroprudential management and expectation management, and maintain stable operation of the foreign exchange market.
Looking forward, Wen Bin, Chief Economist at China Minsheng Bank, believes that with the continuous optimization of trade structure, high export growth rates are likely to continue, and the trade surplus is also expected to remain at a high level, which will provide strong support for the yuan exchange rate. At the same time, foreign exchange market participants have become increasingly rational and pragmatic, and the concept of exchange rate risk neutrality is gaining deeper acceptance. Coupled with regulatory authorities' continued use of tools like the central parity rate to stabilize exchange rate expectations, it is anticipated that scenarios of excessively rapid, one-sided yuan appreciation are unlikely to materialize easily.
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