SHANGHAI/HONG KONG, March 12 (Reuters) – Chinese companies have rushed to derivatives for protection from currency exposure as a rising yuan has hurt some exporters for months and – more recently – the war in Iran has ramped up volatility.
The trend is breaking records and, sources said, is being encouraged in part by authorities. For now, short-term risk-aversion is driving investors, businesses and other participants into the dollar and an 11-month yuan rally has paused.
But in the longer run, hedging will deepen the market and the scramble to do so suggests a major shift is underway as exporters reduce their dollar exposure, which could soon set the yuan higher particularly as exports boom.
Using forwards, a popular way for businesses to offset exposure by agreeing on foreign-exchange prices in advance, net selling of foreign currencies jumped to a record $39 billion in January.
That followed a record outright net selling of dollars to Chinese banks of $100 billion in December and a hefty $80 billion in January.
The trend will likely continue as China’s exports surged 22% in January and February, putting the economy on track to top last year’s record $1.2 trillion trade surplus.
Chinese exporters, who make sales abroad in dollars, have long kept most of the proceeds and invested them, converting to yuan only what they need to cover business costs at home.
A rising yuan presents a problem: Their dollar holdings diminish in value. So they have been selling dollars and increasing hedging, which has only added upward pressure on the yuan, in turn encouraging even more dollar selling.
“We have seen a stark transformation in market participants’ view on the yuan over the past year,” said Lynn Song, chief economist for Greater China at ING in Hong Kong.
“Where overwhelmingly we had a strong yuan depreciation bias in the markets, (we now have) almost a consensus yuan appreciation bias,” he said, which in turn is encouraging hedging that ends up bolstering yuan gains in spot trading.
It makes for a delicate situation for authorities to prevent the market becoming one-sided and two sources said they had encouraged both importers and exporters to cut exposure by hedging.
In recent days, trading volumes have surged and there has been a swing in short-dated options in favour of the dollar. But in interviews and disclosures, companies said they are increasingly seeking protection from yuan gains.
WINDOW GUIDANCE
Over the past few months, the foreign-exchange regulator and central bank have told some Chinese banks to promote the use of hedging tools and increase companies’ hedging ratios, which would become part of the regulatory health checks on lenders, according to two people familiar with the requests who were not authorised to speak publicly.
The informal instructions, also known as window guidance, asked some banks in a coastal province to increase their corporate clients’ hedging ratios to roughly 40%, one of the people said. Nationally it stands at 30%, up by eight percentage points from 2020, Li Bin, the deputy head of the State Administration of Foreign Exchange (SAFE), told a media briefing in January.
“We will continue to strengthen exchange-rate risk management services … supporting businesses in better focusing on their core operations and mitigating risks,” he said.
People’s Bank of China Governor Pan Gongsheng told reporters at the National People’s Congress last week that together with a 30% rate of using yuan in cross-border trade, it meant some 60% of trade “is relatively less affected by exchange-rate fluctuations.”
“This ratio is projected to increase further this year,” he said. The PBOC declined to comment when contacted by Reuters and SAFE did not immediately respond.
YUAN GAINS HURT EXPORTERS
Losses are another powerful motivator for companies that have been caught holding dollars as the greenback has given up nearly 6% of its value against the yuan over the past 11 months.
Huizhou Sanchuang Technology, a Chinese maker of cooling equipment, for example, has drastically shifted its strategy compared with a year ago, said deputy financial officer Michael Don. Previously, the company kept idle cash in Hong Kong wealth management products, collecting income and gains as the dollar rose.
“Now, we settle the dollar receipts as soon as we get them,” he said.
Beijing Ultrapower Software said the yuan’s strength was partly to blame for a 28% plunge in its 2025 profit, according to a company filing.
Suzhou Junchuang Auto Technologies said a rising yuan was behind its 31% slump in its annual earnings; other firms disclosing foreign-exchange losses include Robot maker Ninebot, Shenzhen Hello Tech Energy and Shenzhen Hui Chuang Da Technology.
In response, many firms have turned to forwards, options and swaps, said Liu Wencai, founder of risk-management consultancy D-Union.
D-Union found that a record 1,409 listed Chinese companies disclosed currency-risk hedging measures in 2025, up 13.5% from a year earlier. It added that this year, roughly 300 companies had already unveiled forex hedging plans.
Forex-risk hedging “would greatly improve corporate value and is more significant at a time when Chinese companies are ramping up overseas expansion,” Liu said.
To be sure, the war in the Middle East has upended many expectations. And PBOC tweaks to forward reserve requirements have made selling dollars in the forward market slightly more expensive, with both combining to halt yuan gains.
But companies have accumulated about $1 trillion in onshore dollar deposits and a further $2 trillion in overseas dollar assets, according to Soochow Securities estimates, so if even a fraction of that were to be hedged or repatriated due to uncertainty, that would be a significant shift in the flows in China’s forex market.
(Reporting by Samuel Shen in Shanghai and Jiaxing Li in Hong Kong; Editing by Tom Westbrook and Thomas Derpinghaus)
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