China firms urged to strengthen risk management

  • Business
  • Wednesday, 22 Jan 2020

SHANGHAI: China’s foreign exchange regulator has urged companies to strengthen their risk management systems to lessen the impact from rising two-way volatility in the Chinese yuan.

The remarks were made by Wang Chunying, a spokeswoman at the State Administration of Foreign Exchange (SAFE), in the regulator’s China Forex magazine.

The key to sustainable and healthy development of the foreign exchange market was that companies do not deviate from their core businesses or speculate on the exchange rate, but reasonably evaluate risk and transactions and effectively participate in foreign exchange trade, Wang wrote.

The regulator had queried more than 2,400 companies last year and found that domestic firms had shortcomings and weaknesses in FX risk management.

Many still bet on one-way moves in the currency, some did not hedge when the volatility was low, some lacked FX derivatives knowledge and some firms were sensitive to currency losses.

The yuan lost 1.3% to the dollar in 2019, as the Sino-US trade war rapidly escalated and put more pressure on China’s already slowing economy.

It pulled well off the lows later in the year as tensions eased and Beijing and Washington agreed on a partial trade deal in December.

Wang said: “The yuan could come under pressure this year from factors such as slowing global growth, trade protectionism, increasing global financial market vulnerability and political uncertainties.”

Separately, the FX regulator said it would continue to publish data to improve transparency.

As part of the Phase 1 Sino-US trade deal signed last week, both countries have agreed to publish relevant data on exchange rates and external balances on a prescribed schedule.

In the magazine article, Wang also reiterated that China’s currency regime is a managed floating exchange rate system based on market supply and demand, with reference to a basket of currencies.

The yuan was on a tear earlier this month after the Trump administration formally removed China’s designation as a currency manipulator, while China also pledged to refrain from competitive devaluation. It has strengthened about 1.1% to the dollar so far this year. — Reuters

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