SCIO briefing on China's foreign-exchange receipts and payments data in H1 2022
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E-mail China.org.cn, August 3, 2022
CRI:
What efforts has the SAFE made to better manage foreign exchange risks in the first half of this year? How well did they work? What's the next step? Thank you.
Wang Chunying:
The SAFE has actively supported enterprises to manage foreign exchange risks and served the development of the real economy. As part of our efforts to advance stability on the six fronts and security in the six areas, especially keeping foreign trade and market entities stable, we have adopted a set of measures to cut the cost of exchange rate hedging and enhance enterprises' ability to deal with foreign exchange risks with a focus on the micro, small, and medium-sized enterprises. Next, I would like to briefly introduce some of our key tasks.
First, in April, the People's Bank of China (PBC) and the SAFE jointly issued a document encouraging qualified regions to strengthen cooperation between governments, banks, and enterprises. It encouraged exploring and improving the sharing mechanism for exchange rate hedging costs, expanding the government financing guarantee system, and providing guarantees for enterprises in terms of trade financing and exchange rate hedging business. It also instructed the China Foreign Exchange Trade System to waive inter-bank foreign exchange market transaction fees related to foreign exchange derivatives transactions of micro, small and medium-sized enterprises.
Second, in May, the SAFE issued the "Circular on Measures to Further Promote the Foreign Exchange Market to Serve the Real Economy." We introduced innovative foreign exchange options, launched two types of options products, expanded the business scope of jointly handling RMB and foreign exchange derivatives, and supported qualified small and medium-sized financial institutions to better provide exchange rate hedging services for micro, small and medium-sized enterprises. The Ministry of Commerce, the PBC, and the SAFE jointly issued a document requesting all localities to use the special funds for foreign trade development to provide enterprises with public services such as business training and information services in exchange rate hedging.
Third, we continue to increase publicity and training efforts. To make the relatively specialist issue of foreign exchange hedging more understandable and popular, we compiled the 50,000-word "Guidelines on Enterprise Exchange Rate Risk Management," published on our official website on July 1. You can read it on our official website. The guidelines provide a detailed introduction to the neutral connotation of exchange rate risks, the institutional framework of exchange rate risk management for enterprises, the adaptation scenarios of foreign exchange derivatives, and the use of hedging accounting. At the same time, the document provides targeted guidance on the difficulties existing in the hedging of state-owned enterprises and micro and small enterprises. A number of outstanding enterprise cases are included in the guidelines, based on their practices in exchange rate risk management in recent years. While compiling the guidelines, we paid particular attention to using easy-to-understand words. As a result, the readability is excellent. We hope to provide a valuable reference for foreign-related enterprises' exchange rate risk management.
Thanks to the efforts of all parties, in the first half of this year, the foreign exchange derivatives such as forward options, used by enterprises to manage exchange rate risks, reached $755.8 billion, up 29% year on year. The foreign exchange hedging ratio hit 26%, 4.1 percentage points higher than last year. Nearly 17,000 enterprises registered accounts for exchange rate hedging for the first time. Most of these new accounts are micro, small and medium-sized enterprises, especially the micro and small. These "first-time accounts" are of great significance. Only when enterprises get to know exchange rate hedging, and recognize and understand its benefits will they use it further. Therefore, we support the work to push for "first-time accounts."
Next, we will continue to do targeted work. First, we will release the dividends of the exchange rate risk management policy, break through the existing blockages in implementing the policy, and strengthen the policy transmission to financial institutions. We will urge financial institutions to enhance their initiative and professional level of helping enterprises better hedge exchange rate risks. Second, we will continue to support localities where conditions permit to replicate and promote the successful practices of micro, small and medium-sized enterprises in exchange rate risk management. We will use relevant special funds well and implement the policy of fee reductions and interest concessions. Third, we will take the release of the guidelines as an opportunity to continue to increase cooperation, publicity, and training with state-owned assets, commerce, and other departments. We will use our knowledge to enhance enterprises' awareness of exchange rate risk neutrality. We will assist them in establishing effective exchange rate risk management mechanisms.
Just mentioned are the results of our work in the first half of this year and the key direction for our efforts for the second half. Thank you.
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