Invest1 publisher3 min readPublished
SAFE writes a 40% client hedging ratio into bank performance assessments
Crypto Briefing reports that SAFE branches in China's coastal export provinces are calling banks to lift client hedging toward 40%, with the national ratio at about 35.3% after the PBOC made forward contracts cheaper in March.
The Investor · Invest desk
What happened
- SAFE and the PBOC have leaned on lenders through window guidance, an informal channel with no formal mandate or published rule behind it, aimed particularly at banks in export-heavy coastal provinces.
- Regulators want certain banks to lift their client hedging ratios to roughly 40%, and that benchmark is being written into the banks' regulatory performance assessments.
- China's national corporate FX hedging ratio was 22% in 2020, 30% by January 2026 and about 35.3% for the first half of 2026.
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Why it matters
- exposure Buyers sourcing from Chinese exporters now deal with counterparties whose hedging decisions follow their bank's performance score, a number no customer gets to see.
- constraint With the reserve at zero, cost is no longer an excuse a small exporter can offer its bank, so declining a forward becomes a preference the relationship manager will argue with.
- capability Each point of hedging ratio shrinks the pool of unhedged export dollars that can be converted in a rush on a weak-yuan day, which the PBOC says is the self-feeding pressure it wants to damp.
- contradiction The 40% figure is a target for certain banks' client books while 35.3% is a national average, so a bank passing its assessment and the country reaching 40% are not the same test.
The gap between 35.3% and 40% is 4.7 percentage points, or about 13% more hedged exposure than Chinese corporates carry now [1]. The national ratio took more than five years to move from 22% in 2020 to 30% in January 2026, eight points, and then added 5.3 points in roughly six months to reach about 35.3% by the middle of 2026 [3][2]. Hold that rate and the remaining 4.7 points land in about five months [3].
Price moved in the same window. The PBOC took the foreign exchange risk reserve requirement from 20% to zero on March 2, 2026 [6]. Banks charge that reserve on to clients who buy forwards, so the cut lowered what a hedge costs a smaller exporter in the same half the ratio jumped [7].
January is the useful month. Net selling of foreign currency through forwards hit $39 billion, described in Crypto Briefing's account as record volume, and it happened about two months before the reserve went to zero [5][5]. So the record cannot be explained by the price cut. In my view the assessment score is part of the cause: a branch whose regulatory performance review contains a client hedging ratio has a reason to call the exporter that does not think it needs a forward, and a reason to point its corporate sales effort there [2]. The competing reading is that yuan volatility sold the product by itself and the guidance is riding a trend it did not start. The report's figures leave the two tangled together.
Pan Gongsheng, the PBOC governor, has put the share of trade that now faces reduced exchange-rate impact at 60%, crediting better hedging, according to the same account [8]. The seller's incentive sits in the report's worked example. An exporter invoicing in dollars and paying wages in yuan loses 3% of revenue if the yuan firms 3% between signature and payment, which on a 5% margin is three-fifths of the profit [9][4].
For a buyer, all of this stays off the paperwork. The report does not name the banks involved or say which coastal provinces took the calls [1]. The change shows up in counterparty behaviour instead: a supplier that has already sold its dollars forward has fixed its yuan proceeds, while the unhedged one is the firm the PBOC describes converting in a rush during yuan weakness and feeding the selling pressure [10].
If SAFE publishes an actual measure, the informal channel stops being the interesting question, because banks and their customers would have a text to read [4]. And if the ratio flattens near 35% through the second half of 2026 with the reserve still at zero, the phone calls do not bind. Price was carrying the move all along [6][3].
What to watch
- Whether the PBOC reinstates the 20% forex risk reserve if the yuan weakens. Reinstating it would raise the price of the hedge the PBOC just made free.
- Whether the hedging benchmark spreads beyond coastal branches to inland provinces, and to which categories of bank.
- The next update to Pan Gongsheng's 60% figure for the share of trade facing reduced exchange-rate impact.