China Forex Regulator Urges Firms to Strengthen Risk Management

China’s foreign-exchange regulator called on domestic trading companies to strengthen risk management to mitigate the impact of exchange rate volatility on their business.

At its recently concluded 2018 work meeting, China’s State Administration of Foreign Exchange (SAFE) listed guidelines to companies to establish risk-neutral awareness and sound risk management among its priorities for this year.

Foreign trading companies are the major players in China’s onshore foreign-exchange market, but many medium- to small-sized enterprises, which are used to making one-way bets on exchange rates, have faced significant losses from recent larger volatility in the yuan exchange rate, SAFE said.

Many companies have not put risk management in place due to inadequate understanding of risks and hedging, SAFE spokesperson Wang Chunying recently said in a press conference.

“Some companies may find they bet in the wrong direction and rush to adjust their risk exposures, but such a unified move may lead to unbalanced supply and demand of foreign exchange, aggravate the fluctuations of the yuan exchange rate and the interest rate, and contribute to panic and chaos in the market,…

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