The Chinese yuan has continued to appreciate against the U.S. dollar following the Lunar New Year holiday. On February 26, the offshore yuan strengthened past the 6.83 level against the dollar, while the onshore yuan rose to 6.8310, approaching the same threshold and marking its highest level since April 2023. For many export-oriented companies that settle transactions in U.S. dollars, this trend implies shifts in their yuan-denominated revenue upon conversion, placing greater demands on their cost control and risk management capabilities.
The foreign trade sector is currently transitioning from relying solely on price differentials for profit to a more refined operational phase that emphasizes specialized capabilities and risk management.
**1. Shifts in Industrial Structure: High-End Manufacturing’s “Value Leap”** In contrast to the relative ease with which high-end manufacturing adapts to currency fluctuations, traditional low-to-mid-tier industries are facing a critical period of transformation and upgrading.
The sustained appreciation of the yuan is having an increasingly differentiated impact on exporters across various industries and value chains. Dong Peng, a member of the China Enterprise Confederation’s Capital Committee and a senior economist, noted that the divergent effects of yuan appreciation on exporters essentially reflect an acceleration of industry differentiation. He described the situation as follows: “Appreciation acts like a ‘magnifying glass,’ clearly revealing the true competitiveness and risk resilience of different sectors.”
Dong explained that, from an industrial structure perspective, high-end manufacturing demonstrates a strong “technological moat” effect. Products in this segment benefit from high added value, low price elasticity, and technological irreplaceability, which reduce overseas customers’ sensitivity to price changes. Such companies can not only lock in exchange rates in advance through contractual terms but also mitigate the impact of appreciation by establishing overseas production facilities and expanding the use of local currency settlements.
Zhang Lin, Deputy Director and Chief Macroeconomic Researcher at the Far East Credit Rating Institute, offered a professional analysis from three angles. He suggested that high-end manufacturing exhibits a strong capacity to absorb exchange rate risks, making it less affected by yuan appreciation.
First, these industries may benefit directly on the cost side. For sectors reliant on imported high-end equipment and raw materials—such as aerospace, integrated circuits, and precision manufacturing—yuan appreciation directly reduces production and operational costs, allowing companies to convert these savings into profits.
Second, strong core competitiveness enhances pricing power. High-end manufacturing products often possess technological barriers and brand premiums, resulting in relatively inelastic demand. Even as the yuan appreciates, international buyers remain inclined to purchase these “irreplaceable” goods. Some firms have even used the appreciation trend to moderately raise prices, further narrowing buyers’ bargaining power while boosting their own profitability.
Third, innovation and technology-driven strategies help hedge risks. Supported by ongoing industrial policies, high-end manufacturers are proactively countering exchange rate risks through technological upgrades and product iteration. Data show that China’s exports of high-tech products grew by 13.2% in 2025, significantly outpacing overall export growth. This underscores that products with higher technological content are more resilient to exchange rate fluctuations and better equipped to withstand external shocks.
In contrast, low-to-mid-tier traditional industries are under clear pressure. Zhang Lin highlighted three main challenges for these sectors.
First, profit margins are being directly squeezed. Labor-intensive, low-value-added industries—such as standard textiles, basic steel products, and daily chemicals—have long relied on price competitiveness. Yuan appreciation means that the same dollar-denominated orders translate into fewer yuan upon conversion, further eroding already thin profit margins.
Second, companies face a pricing dilemma. They are caught in a lose-lose situation: if they maintain original prices to preserve margins, customers may turn to other suppliers due to higher costs; if they lower prices to retain customers, order profitability is directly undermined.
Third, market share is being lost. Low-end products lack brand premium, making overseas buyers highly sensitive to exchange rate movements. Against the backdrop of sustained yuan appreciation, the price competitiveness of these goods declines, prompting some exporters to optimize their market strategies or accelerate efforts to tap domestic demand.
**2. Source of Export Resilience: Transition from “Price-Driven” to “Value-Driven”** China’s reduced sensitivity to yuan appreciation in exports does not contradict traditional economic theory but reflects a fundamental shift in the core of export competitiveness—from being “price-driven” to “value-driven.”
Customs data released on January 14 showed that China’s total goods trade reached 45.47 trillion yuan in 2025, up 3.8% year-on-year, marking the ninth consecutive year of growth since 2017. Exports grew 6.1% to 26.99 trillion yuan, while imports edged up 0.5% to 18.48 trillion yuan, resulting in a trade surplus of 8.51 trillion yuan.
Why has China’s export sector remained robust even as the onshore yuan approaches 6.83 against the dollar? The conventional economic logic that “currency appreciation suppresses exports” appears less applicable in China’s current trade landscape.
Zhang Lin noted that in recent years, Chinese exports have not only become less sensitive to exchange rate movements but have also shown stronger resilience to external disruptions such as overseas tariffs. He attributed this to four key developments:
First, the export product mix has shifted from “low-price competition” to “technology competition.” High-end manufacturing and high-tech products—such as electronics, aviation components, and automotive manufacturing—account for a growing share of exports. These products function as “hard currency” in international markets, characterized by irreplaceability and inelastic demand. Even with a stronger yuan, overseas buyers continue to prefer Chinese products due to quality and supply chain stability.
Second, the real effective exchange rate has not risen in tandem. Although the nominal yuan-dollar rate has appreciated, high inflation in the U.S. has reduced the dollar’s purchasing power. When accounting for relative price levels, the real effective exchange rate of the yuan has not increased significantly. This means Chinese goods have not become substantially more expensive in real terms internationally; instead, their comprehensive competitiveness has strengthened due to improved quality and technology.
Third, companies have significantly enhanced their ability to hedge exchange rate risks. A growing number of exporters are using financial instruments such as forward contracts and options to actively manage exchange rate exposure rather than passively enduring market volatility. This “forward hedging” strategy reduces the direct impact of exchange rate fluctuations on profits and stabilizes business expectations.
Fourth, the internationalization of the yuan provides a natural hedging channel. The rising use of yuan in cross-border trade settlements is gradually reducing the dominance of the U.S. dollar. For companies settling transactions directly in yuan, exchange rate risks are inherently avoided at the settlement stage.
Dong Peng offered a deeper analysis of the “desensitization” phenomenon. He argued that the reduced sensitivity of Chinese exports to yuan appreciation does not refute traditional economics but reflects a fundamental transformation in export competitiveness—from being driven by price to being driven by value.
From an industrial chain perspective, the “irreplaceability” of Chinese manufacturing has strengthened significantly. Amid global supply chain restructuring, China’s comprehensive industrial ecosystem, efficient logistics, and stable production capacity have made it an indispensable partner for many multinational corporations. Even with a stronger yuan, international clients are willing to pay a reasonable premium for “Chinese efficiency” and “Chinese speed.”
From a trade pattern perspective, the declining share of processing trade and the rising share of general trade, coupled with the rapid growth of new models such as cross-border e-commerce and overseas warehouses, have enabled companies to diversify and hedge against single-market exchange rate risks. The resilience of exports is being redefined.
**3. Policy Support for Stability: The Need for More Refined Risk Management** While policies create favorable conditions, the real test lies in companies’ ability to adapt.
Shortly after the yuan breached the 6.83 level, the People’s Bank of China (PBOC) intervened. On February 27, the central bank announced that, effective March 2, 2026, it would lower the foreign exchange risk reserve ratio for forward foreign exchange sales from 20% to 0.
Huo Hongyi, a well-known business consultant and expert in corporate strategy and macroeconomics, stated that this adjustment sends a clear signal of “maintaining stability in the foreign exchange market and reducing the cost of hedging for companies.” The move aims to prevent rapid yuan appreciation from hurting exports while encouraging firms to actively use financial tools to manage exchange rate risks by eliminating capital occupancy costs for forward sales. It reflects a policy orientation of “precise support for the real economy and stabilized market expectations.”
Zhang Lin further explained that the foreign exchange risk reserve ratio can be seen as a “threshold” for banks conducting forward exchange transactions. Reducing the ratio from 20% to 0 means banks no longer need to set aside additional capital for these operations, which lowers their costs and ultimately benefits companies—forward hedging fees will decrease significantly, making hedging tools more accessible and affordable. This incentivizes more market participants to actively use financial instruments to lock in costs and manage risks.
Historical adjustments to this tool reveal its counter-cyclical nature. In September 2022, when the yuan faced significant depreciation pressure, the PBOC raised the ratio from 0 to 20% to stabilize market expectations. Now, with strong appreciation expectations and heightened market sensitivity, the ratio has been reset to 0, demonstrating the central bank’s consistent approach: it neither pursues a one-sided exchange rate nor allows expectations to self-reinforce, but instead uses market-based measures to guide the yuan toward two-way fluctuations within a reasonable and balanced range.
While policies create favorable conditions, the real test lies in companies’ ability to adapt.
Although some firms have recognized the importance of staggered currency conversions and tactical operations, many small and medium-sized enterprises still face multiple barriers when dealing with more complex hedging instruments like forward contracts. Dong Peng summarized common challenges in corporate exchange rate management as “three mismatches”:
First, a cognitive mismatch: many companies still view hedging as “betting on exchange rate direction” rather than “locking in operating costs,” leading to poorly timed decisions.
Second, a capability mismatch: SMEs often lack specialized teams for exchange rate management and may inappropriately apply large corporations’ hedging models, inadvertently amplifying their own risks.
Third, a tool mismatch: some firms over-rely on a single derivative product without developing diversified hedging strategies tailored to their specific business needs.
In response, Zhang Lin advised companies to adhere to the “risk-neutral” principle when using financial derivatives—focusing on reducing uncertainty from exchange rate fluctuations rather than speculating on rate movements. He also emphasized the need for sound internal approval processes and risk management systems.
Dong stressed that the PBOC’s latest adjustment sends a clear signal of “stabilizing expectations and promoting two-way volatility,” reflecting a balance between respecting market rules and maintaining prudent oversight. However, policies can only improve the external environment; they cannot substitute for companies’ own professional capabilities. At its core, exchange rate risk management is a test of expertise.
Looking ahead, companies should accelerate the shift from “passively adapting to exchange rate fluctuations” to “actively managing exchange rate risks,” integrating risk management deeply into their overall business strategies. As corporate awareness and capabilities improve, China’s foreign trade is poised to achieve higher-quality development on a more resilient and adaptive path.
Comments