Original title: Pan Gongsheng emphasized that the foreign exchange market has seasonal characteristics and should adhere to the principle of “exchange risk neutrality”
At present, China’s economy is stable and improving, the monetary policy is in a state of normalization, the international balance of payments is operating steadily, and the foreign exchange market is more mature. These factors will continue to provide strong support for the stability of the RMB exchange rate.
“Weather vane” of financial development
The information revealed on the Lujiazui Forum every year will often become the vane of future financial policies. On June 10th, the 13th Lujiazui Forum opened in Shanghai. The theme of the forum was “China’s Financial Reform and Opening up under Global Changes”. Seven plenary sessions and a Pujiang evening talk will include financial reform and opening up, and carbon development. Eight topics including peak carbon neutralization, RMB internationalization, and new capital market ecology were discussed. A number of heavyweight speakers gathered at the forum to provide inspiration for the solution of major global economic and financial issues and the further improvement of global economic and financial governance.
In response to the future trend of the renminbi, the top management of the People’s Bank of China once again issued a clear signal.
On June 10, Pan Gongsheng, Vice Governor of the People’s Bank of China and Director of the State Administration of Foreign Exchange, delivered a speech at the 13th Lujiazui Forum, pointing out that China’s current economy is stable and improving, monetary policy is in a state of normalization, balance of payments is operating steadily, and foreign exchange The market becomes more mature, and these factors will continue to provide strong support for the stability of the RMB exchange rate.
He also emphasized that the changes in China’s foreign exchange market have obvious seasonal characteristics. From June to August each year, there are more seasonal purchases of foreign exchange. Foreign-invested companies and overseas listed companies have concentrated dividends and profit remittances. At the same time, a large number of overseas students in China will generally purchase foreign exchange in these few months. The tuition fees for the next academic year and living expenses overseas, so the seasonal characteristics of China’s foreign exchange market are very obvious.
From the perspective of industry insiders, Pan Gongsheng’s remarks will undoubtedly further “cool down” the recent rapid appreciation of the renminbi.
Affected by this, as of 19:00 on June 10, the exchange rate of RMB against the US dollar in the domestic onshore market was hovering at 6.3932, down 60 basis points from the previous trading day.
A foreign exchange trader at a Hong Kong bank pointed out that after the central bank recently introduced a series of measures to stabilize expectations, the recent fluctuations in the RMB exchange rate are highly and negatively correlated with the trend of the U.S. dollar, indicating that the expectation of betting on the rapid appreciation of the RMB has clearly ebbed.
“The rapid rise and fall of the renminbi exchange rate this time has also caused a certain amount of exchange losses to many foreign trade companies that blindly chase the rise and kill the fall.” A director of the financial market department of a joint-stock bank told reporters. During the rapid appreciation of the renminbi, some foreign trade companies had blindly settled foreign exchange (converting U.S. dollars to renminbi), and now they have suffered a certain amount of floating exchange losses; some foreign trade companies have increased their positions with high leverage, and the execution price is 6.2-6.3. Renminbi derivatives also suffered speculative losses of a certain amount.
Pan Gongsheng said that to reduce corporate exchange rate risks, companies, banks, and regulatory authorities need to work together.
He said that last year the scale of transactions in China’s foreign exchange market reached US$30 trillion, of which 60% were foreign exchange derivatives transactions. It shows that the concept of “exchange risk neutrality” of Chinese enterprises has been continuously strengthened, and the level of exchange rate risk management has been continuously improved. Since the beginning of this year, the hedging ratio of corporate foreign exchange derivatives has reached more than 20%, an increase of 5 percentage points from last year, but there is still plenty of room for improvement.
Companies still have a long way to go to strengthen the “exchange rate risk neutral” operation
The director of the financial market department of the aforementioned joint-stock bank admitted frankly that compared with financial institutions seeing the central bank’s efforts to stabilize expectations, they have reduced the renminbi bullish positions, and the response of enterprises to policies has been relatively slow.
“The renminbi exchange rate rebounded in the past two days, which caused some foreign trade companies to still buy high-leverage renminbi derivatives with an execution price of 6.2-6.3, betting on the rapid appreciation of the renminbi exchange rate,” he told reporters. In addition, some foreign trade companies have also reduced their previously established foreign exchange hedging positions and instead bet on the unilateral appreciation of the renminbi.
In this regard, his bank is increasing the foreign exchange market risk education for foreign trade companies. On the one hand, it will introduce to companies the specific impact of the central bank’s recent stabilization measures on the foreign exchange market. On the other hand, it will introduce new foreign exchange risk hedging products to them. “Enterprises’ speculative betting behavior. For example, they are introducing foreign exchange risk reversal portfolio option products to foreign trade companies. As long as the option exercise price is within the enterprise’s risk tolerance range, and the RMB exchange rate is within the scope of the option product’s exercise price, the enterprise is in the product life There is no need to pay option fees, so as to hedge the risk of RMB exchange rate ups and downs at a lower cost.
In addition, he also suggested that foreign trade companies use more RMB foreign exchange currency swap products linked to LPR loan interest rates. Specifically, foreign trade companies can convert foreign exchange loans into RMB for production and operation at a fixed exchange rate, and return the RMB interest linked to the LPR loan interest rate to the bank on time; when the product expires, the company then converts RMB into foreign exchange at the same exchange rate (Repayment of the principal of the foreign exchange loan). The advantages of this operation are that, first, companies can enjoy lower financing costs, and second, the relevant foreign exchange settlement and sales prices remain consistent, and companies do not need to worry about the risks of exchange gains and losses.
But he found that despite the increasing availability of foreign exchange risk hedging products, many foreign trade companies still generally have strong “procyclical” behaviors in foreign exchange risk management. The reason is that these companies regard foreign exchange operations as profit-generating tools, and they tend to form a “pro-cyclical” operational thinking in foreign exchange operations, that is, if the RMB exchange rate appreciates quickly, they will quickly follow up and catch up, and vice versa. Expect to make a profit; second, the financial assessment system of the enterprise needs to be improved. Many foreign trade companies only pay attention to the profit and loss of foreign exchange hedging operations, and will not comprehensively evaluate it with the foreign exchange risk exposure of the business side, so as to comprehensively view the gains and losses of foreign exchange hedging.
Pan Gongsheng said that to reduce corporate exchange rate risks, companies, banks, and regulatory authorities need to work together. First, some companies have “procyclical” and “streaking” behaviors in foreign exchange risk management. The procyclical financial operations of companies accumulate risk exposure through currency mismatches of assets and liabilities, earn the benefits of exchange rate appreciation and depreciation, and will inevitably bear the exchange rate. The risk of appreciation and devaluation. From the perspective of corporate financial stability, corporate exchange rate risk management should adhere to the principle of serving the main business and “exchange rate risk neutrality”, prudently arrange the asset-liability currency structure, and avoid the “procyclical” and “streaking” behaviors of foreign exchange risk management. Don’t bet If the RMB appreciates or depreciates, long-term bets must be lost; the second is to establish a sound, open and competitive foreign exchange market; the third is to promote financial institutions to enrich safe-haven products and reduce the cost of corporate hedging and hedging; the fourth is to improve market transparency and facilitate market players Judging the situation of the foreign exchange market rationally; the fifth is to strengthen macro-prudential management and expected guidance, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.
High-level opening of capital items “steadily advance”
It is worth noting that with the acceleration of the opening up of the financial market, the market has higher expectations for further liberalization of China’s capital account.
Recently, the Lingang New Area of Shanghai Free Trade Zone released the “Fourteenth Five-Year Plan for Financial Industry Development in Lingang New Area”, which pointed out that it will promote the internationalization of RMB and convertibility under capital accounts; explore and promote the free use of RMB and convertibility under capital accounts. Pilot projects in the Lingang New Area, steadily promote capital account convertibility, and continuously improve the convenience of current account convertibility.
Pan Gongsheng said that since the beginning of this century, China’s capital account opening has been at a steady pace and has a relatively high level of convertibility in accordance with international standards.
“Capital account refers to cross-border capital and financial transactions, which mainly include three types of cross-border direct investment, securities investment, and cross-border lending, involving three links: cross-border transactions, currency exchanges, and cross-border remittances of funds. At present, direct investment Basic convertibility has been realized; under the securities investment, a cross-border investment system arrangement based on institutional investor system, interconnection mechanism, and direct entry of foreign investors into the market has been formed; cross-border debt financing is subject to a full-scale macro-prudential policy framework by market entities Proceed independently.” He pointed out. In the future, SAFE will steadily and orderly promote the high-level opening of China’s capital accounts; coordinate transactions and exchange links, coordinate cross-border RMB and foreign currency management, coordinate capital account opening and risk prevention, and promote the opening of a small number of non-convertible projects in an orderly manner. The level of facilitation of the redeemable items.
“In the near future, we will also carry out high-level foreign exchange management opening pilot projects in the Shanghai Lingang New Area, Guangdong-Hong Kong-Macao Greater Bay Area and parts of the Hainan Free Trade Port, and accumulate experience for promoting high-level institutional opening in the foreign exchange field.” Pan Gongsheng pointed out.
According to industry insiders, the liberalization of capital items for individuals is currently steadily advancing. Recently, SAFE has been expanding the scale of Qualified Domestic Institutional Investors (QDII), improving the QDII management mechanism, and launching cross-border financial management services in open areas. Pilot.
“These measures have not only attracted more domestic funds to participate in overseas market investment, but also effectively hedged the pressure of capital inflows, and further eased the expectation of rapid RMB appreciation.” A chief representative of the Asia-Pacific region of a European asset management agency told reporters.
(Author: Chen Zhi Editor: Bao Fangming)
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