SCIO briefing on China's foreign exchange receipts and payments

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Speaker:

Wang Chunying, spokeswoman of State Administration of Foreign Exchange


Chairperson:

Xi Yanchun, vice director-general of Press Bureau, State Council Information Office


Date:

Jan. 18, 2018


China Daily:

Did companies make any change to manage risks after the stronger fluctuations of the RMB exchange rate in 2017? Will the State Administration of Foreign Exchange work out any plan in 2018 to guide companies to manage risk? 

Wang Chunying:

I would really like to convey more information on risk management in exchange rate to the market players through the media. Since 2017, Chinese companies have further improved their risk management to adapt to market changes. In fact, the risk tolerance of the companies is directly related with their awareness and management of the risks. After the fluctuations, we are pleased to have seen that most companies no longer simply gamble on the appreciation or depreciation of the RMB exchange rate, and there are less irrational behaviors or responses out of panic. The State Administration of Foreign Exchange has also asked the banks in many ways and channels to inform the market players and clients of the risks, and to guide the companies to establish risk-neutral awareness and sound risk management.

Risk-neutral awareness really matters, but we still see many companies not putting due risk management in place due to the following two main reasons. First, inadequate understanding towards the risks. Some companies are still used to gambling on either appreciation or depreciation of RMB, and make subjective judgments rather than proper risk management. Second, insufficient understanding towards hedging. Hedging is actually an investment to reduce risk, just like spending a little money on insurance. Some companies are unwilling to pay the money, or regard hedging as a means of speculation and ignore its essential function of offsetting the risks of uncertainty. They lack the awareness of controlling risk exposures, and even pursue profits in the risks sometimes rather than taking prudent hedging measures. Some companies may find their judgments wrong when the foreign exchange market fluctuates, but a unified adjustment of the risk exposures may lead to unbalanced supply and demand of foreign exchange, aggravate the fluctuations of the RMB exchange rate and the interest rate, and contribute to panic and chaos in the market, eventually increasing systematic risks and harming their own business.

In the future, as the mechanism for promoting the liberalization of the RMB exchange rate improves, companies must enhance serious risk-neutral awareness to manage exchange rate risks. In 2018, the State Administration of Foreign Exchange will continue to motivate companies to improve their management of foreign exchange risks and create a better environment for the reform of the mechanism. Reform must take the market into consideration, and market resilience in face of risks is often related to risk awareness and risk management of the market. If companies do not change their fixed mindset, still gambling on appreciation or depreciation instead of taking hedging moves, they may not be able to adapt themselves to even normal fluctuations, and may take irrational actions out of panic. In turn it will hinder the reform. Therefore, the State Administration of Foreign Exchange will give more guidance to the market, and I also hope you can help us with it. Meanwhile, we will urge financial institutions to continue their instructions to clients on risks, help companies enhance risk-neutral awareness and improve the management of exchange rate risks. We will also push forward reform in the foreign exchange market, diversify products, attract more market players, expand the market, open up the foreign exchange market further, and improve the infrastructure of the foreign exchange market. Through these efforts, we will improve services and increase the attractiveness and global competitiveness of our foreign exchange market, and safeguard the market players from risks more effectively. 

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