According to executives, bankers, and data analyzed by Reuters, some Chinese companies are holding on to dollar revenues from exports, while others are turning to foreign exchange hedging
in anticipation of a fall in the value of the yuan.
Several bankers in China have revealed that clients are reluctant to convert export receipts, and more than 30 A-share listed companies have signed up to use currency derivatives for risk-hedging so far this year, according to exchange filings.
The moves are at odds with bank forecasts for a rising yuan in 2023 and broader market expectations that the US dollar will fall this year, and could contribute to yuan weakness.
One Shanghai-based electronic components exporter, Ms. Zhu, said she is setting aside dollars, betting that her management of some $7 million annual inflow of the US currency will prove crucial to the profitability of her company.
"I may need to convert some dollars into yuan to make payments to domestic suppliers," said Zhu, who prefers to go by her last name. "(But) it feels like I should keep some dollars on hand, as the yuan will depreciate further."
Others anticipating a bumpy ride ahead for the Chinese currency include China Southern Airlines (600029.SS). China's largest carrier by fleet size said in a Feb. 28 stock exchange filing that it planned up to $4 billion worth of currency hedging in 2023 to "smooth out exchange gains and losses", up from $850 million last year.
The yuan has experienced volatility since Beijing suddenly unwound its zero-COVID strategy. The currency hit six-month highs in January, before dropping close to the closely-watched 7 per dollar level. The yuan last traded at 6.9085 to the dollar.
In response to faxed questions on the yuan weakening past 7 to the dollar, the People's Bank of China (PBOC) directed Reuters to comments by its governor Yi Gang who said the level is not a "psychological barrier".
"Over the past five years, the exchange rate has been volatile, with a volatility rate of about 4%. And such a volatility rate is about the same as major economies," he said.
"Overall, yuan exchange rate will remain basically stable at reasonable levels," he added at a March 3. news briefing.
The yuan had its worst year in 2022 since China unified market and official exchange rates in 1994, dropping nearly 8% as rising US interest rates diverged from falling Chinese ones, supporting dollar gains.
Now the prospect of Chinese tourists using foreign exchange for their trips abroad, fresh concerns that US interest rates might rise further, and geopolitical tensions keeping investment flows away from China are all weighing on the currency.
However, experts say the yuan's decline this year has so far been "benign" and that the central bank has not intervened to slow the currency's decline, suggesting policymakers are comfortable with the current level. Photo by Yoshi Canopus, Wikimedia commons.