The State Administration of Foreign Exchange (SAFE) and the People’s Bank of China (PBOC) are informally pressuring banks to push their corporate clients’ hedging ratios to approximately 40%, a target now embedded in regulatory performance assessments. China’s national corporate hedging ratio has risen from 22% in 2020 to 35.3% in the first half of 2026, with record volumes of $39 billion in net foreign currency sales through forwards in January alone. The PBOC also cut the forex risk reserve requirement from 20% to 0% effective March 2, 2026, removing a financial friction point that previously deterred hedging among smaller firms. As a result, 60% of China’s trade now faces reduced exchange-rate exposure, protecting margins for exporters in the Pearl River Delta and Yangtze River Delta. The strategy also aims to prevent panic selling during periods of yuan weakness, which could amplify volatility and complicate the PBOC’s management of the currency.
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