China's SAFE Pressures Banks to Increase Corporate Yuan Hedging

The State Administration of Foreign Exchange is directing regional branches to pressure local Chinese banks to increase the yuan hedging ratios of their corporate clients. This regulatory push follows a period where the yuan strengthened approximately 6% against the dollar over the past year, leaving exporters vulnerable to foreign-exchange losses.

To achieve regulator-set targets, banks have implemented several measures, including reducing profit margins, offering flexible deal structures, and converting spot transactions into short-dated forward deals. In provinces such as Zhejiang, Henan, Hebei, and Yunnan, the regulator has provided cash rewards and subsidies for option premiums to encourage company participation.

The initiative coincides with a significant rise in hedging activity. The regulator reports that the notional volume of foreign-exchange derivatives used for hedging exceeded $1.6 trillion during the first seven months of 2026, representing a more than 40% increase from the previous year. The corporate hedging ratio has reached 35.5%.