China presses local banks on corporate yuan hedging

Chinese regulators are urging banks to encourage corporations to hedge their currency risks more aggressively, as the Chinese yuan approaches three-year highs. Local branches of the State Administration of Foreign Exchange (SAFE) are pushing lenders to help businesses manage exchange-rate risk using forwards, swaps, and options.

Corporate hedging usage has surged this year, with enterprises utilizing derivatives to cover 35.3% of their foreign-currency transactions in the first half of 2026, up 5.3 percentage points from the previous year. The contracted value of derivatives for exchange-rate risk management reached nearly $1.4 trillion, a 40% increase from the prior year.

SAFE has also expanded access to hedging services, with about 130 major banks providing derivatives to companies, and a SAFE database covering 290,000 foreign-trade enterprises. The regulator has encouraged banks to offer online dealing channels and improved credit and margin arrangements for smaller businesses. These measures aim to prevent companies from taking on large unprotected positions after periods of weak yuan expectations, which have become more costly as the currency has strengthened.

The People's Bank of China recently removed a 20% foreign-exchange risk reserve requirement for forward dollar purchases, reducing the cost of hedging future receipts. While Beijing aims to avoid an excessive yuan rise, the country's foreign-exchange market remains supported by significant trade and capital flows. Banks recorded a $271.2 billion surplus in foreign-exchange settlement and sales during the first half of the year, with the yuan gaining 0.49% against the dollar in August.

Officials stress that greater hedging is aimed at strengthening corporate resilience, not directing the yuan's movement.