Over 600 Listed Firms Hit by FX Losses; Settlement Surplus Slows at the Margin; Outlook for RMB in H2

The RMB exchange rate has appreciated modestly year-to-date, reaching a staged high on August 21 when offshore RMB against the US dollar briefly surged to 6.7179, the highest level in nearly three and a half years since February 2023. After this high, the exchange rate has shifted into a pattern of range-bound oscillation at elevated levels in recent days. On August 26, the central parity rate of RMB against the US dollar was raised by 23 basis points to 6.7829.

The continued RMB appreciation has turned FX gains and losses into a prominent variable in the semi-annual reports of listed companies. According to Wind data, as of August 26, a total of 677 listed companies had mentioned FX losses in their semi-annual reports for August alone. Some companies that posted substantial FX gains last year swung to FX losses this year.

FX rate volatility has not only disturbed the financial performance of listed companies but has also significantly increased the difficulty of FX hedging for many small and medium-sized foreign trade enterprises.

"For export companies, forward FX settlement inherently involves spread losses. Taking the current market as an example, the spot RMB/USD rate is around 6.72, while the three-month forward FX settlement price sits only in the 6.67 to 6.78 range. Companies cannot lock in the current rate when hedging, and hedging generates explicit costs. This has left many foreign trade companies in a wait-and-see mindset, psychologically unable to accept the income compression caused by the discount," said a frontline banker who has long served foreign trade enterprises. The source noted that although companies do have an objective need to hedge, concerns about hedging costs prevent action, and the mentality of one-sided betting on exchange rate movements has not been fully eliminated.

On the FX data front, banks recorded a settlement surplus of USD 18.26 billion in July, sharply narrower than in June. Against the backdrop of heightened FX rate volatility, a slowing margin in FX settlement surplus, and the continued squeeze on export companies' profits from RMB strength, market discussion on the subsequent trajectory of the RMB has been intensifying. How to guide foreign trade entities to establish a normalized FX hedging mechanism has become a pressing practical challenge of the moment.

Single-Month Settlement Surplus Narrows

According to the July bank FX settlement and sales data released by the State Administration of Foreign Exchange (SAFE), banks purchased USD 266.3 billion and sold USD 248.0 billion in foreign exchange during the month, resulting in a settlement surplus of USD 18.26 billion, a sharp narrowing from the USD 56.66 billion surplus recorded in June.

Market participants have begun to question whether the contraction in the single-month surplus signals a fundamental shift in the supply-demand pattern of the FX market. Li Bin, Deputy Director and Press Spokesperson of SAFE, said that the USD 18.3 billion settlement surplus in July was the result of enterprises carrying out transactions rationally in light of their own actual operating conditions and the market environment, and that the supply-demand balance in China's FX market has remained fundamentally in equilibrium.

The substantial drop in the surplus in July represents a reasonable adjustment at a specific stage. Zhang Lin, Vice President and Chief Macro Researcher at Far East Credit Rating Research Institute, believes that the relatively high level of the settlement surplus in June may have been driven by half-year-end concentrated settlement by enterprises, seasonal FX settlement, and accelerated FX settlement by companies after RMB appreciation expectations strengthened. The June figure carried certain characteristics of one-off concentrated release, and the July pullback likely reflects a routine adjustment following the earlier concentrated release of FX settlement demand.

Zhao Qingming, Chief Economist at Longhe Investment, also noted that the large June settlement surplus was likely mainly linked to the end of the first half of the year, in particular the need for listed companies to release their semi-annual financial reports, which prompted the concentrated FX settlement of foreign exchange income.

Viewing over a longer time horizon, the cumulative bank settlement surplus for the first seven months of 2026 reached USD 289.4 billion, exceeding the full-year total of USD 196.6 billion for 2025, while 2024 saw an overall settlement deficit for banks.

Looking back, FX market settlement behavior has been one of the most direct supporting factors for this year's RMB appreciation.

ICBC's Financial Market Department RMB Exchange Rate Trading Team noted in its review of the first half of 2026 and outlook for the second half published in July that this has been driven jointly by "flow-side" and "stock-side" dynamics. On the stock side, large numbers of export companies chose to hold US dollars between 2023 and 2025, and market estimates put the un-settled funds at USD 500 billion to USD 800 billion. When the magnitude of RMB appreciation exceeded the interest rate differential on dollar holdings, corporate expectations shifted from "waiting for a pullback" to "reluctant to sell at a loss," triggering a non-linear release of FX settlement demand.

The team expects the third quarter to be the peak season for FX purchases related to dividend payments by Chinese companies listed overseas, with market estimates putting cumulative FX purchase demand at close to USD 40 billion. This could partially offset corporate FX settlement demand and push onshore FX market supply and demand toward greater balance. At the same time, as companies gradually shift from accelerated concentrated FX settlement toward a wait-and-see posture on holdings, the pace of future FX settlement demand releases is likely to become more stable.

FX Gains and Losses Disrupt Corporate Financial Performance

On the other side of the coin of changing corporate FX settlement behavior, the rapid RMB appreciation of the current round has made FX gains and losses a prominent variable in many companies' semi-annual reports.

The change at Chery Automobile is particularly representative. During the reporting period, the company recorded a net FX loss of RMB 2.092 billion, compared with a net FX gain of RMB 3.398 billion in the same period last year, a swing of nearly RMB 5.49 billion. The dramatic shift in the FX line item became a key factor dragging down profit growth year on year.

Beyond this, Yawei Shares recorded FX losses of RMB 10.46 million in the first half of 2026 due to FX volatility, compared with FX gains of RMB 10.36 million in the same period last year, directly driving financial expenses up 364.83% year on year. Hikvision experienced a similar reversal, posting FX gains of RMB 607 million in the first half of 2025 before swinging to FX losses of RMB 595 million in the first half of 2026, with financial expenses up 146.83% year on year.

Compared with listed companies, small and micro export enterprises find themselves in a more vulnerable position. These entities' FX hedging needs are generally characterized by small amounts, short cycles, and high cost sensitivity, and they share common practical shortcomings: weak risk awareness, a tendency to bet on one-sided FX market trends, limited understanding of various FX hedging instruments, and an absence of FX risk management practices.

"Some export companies already operate on extremely thin margins, with profitability highly dependent on export tax rebates, and some even forgo a portion of rebate income to subsidize downstream customers. Combined with intra-industry competition, companies often pursue a low-price-for-orders strategy," the frontline banker noted. Against the backdrop of wafer-thin or near-zero margins, even just a few percentage points of FX rate volatility can have a significant impact on companies' actual returns.

In response to these market realities, regulators are guiding enterprises to focus on their core businesses and take proactive measures to manage FX risk so as to minimize the impact of FX volatility on their principal operations and corporate finances. SAFE clearly stated at its second-half FX management work exchange meeting that it would promote multi-party cooperation to reduce FX hedging costs for small and micro enterprises and improve FX market infrastructure services.

The shift from concept to practical implementation still faces many real bottlenecks. According to the banker cited above, for state-owned enterprises and large corporates, the difficulty lies in internal system constraints. "Management worries that after locking in an FX hedge, if the settlement price deviates from the market price, the hedge will be questioned internally. Managers have too many concerns and are reluctant to proactively carry out hedging operations."

For private enterprises, hedging execution depends entirely on operator risk appetite. Some companies adopt a betting mentality, hoping the US dollar will strengthen later. Small and micro companies, constrained by manpower and financial conditions, prioritize quick cash repatriation and are reluctant to bear additional risk management costs, leaving most of them passively absorbing FX losses.

The banker suggested that large enterprises urgently need to put institutional safeguards in place, setting reasonable tolerance thresholds for hedging outcomes via derivatives to remove managers' practical concerns.

No Rapid One-Sided Appreciation Expected

The slowing margin in the FX settlement surplus and the sharp swings in FX gains and losses of corporate entities have fueled ongoing market debate over the subsequent trajectory of the RMB.

Synthesizing both domestic and external variables and multiple expert views, the current round of RMB appreciation is unlikely to manifest as rapid one-sided gains; the most probable pattern for the second half is one-sided strength with oscillation. Drivers of appreciation include the trade surplus, the pace of corporate FX settlement, the US dollar environment, and changes in China's macroeconomy.

Trade resilience remains the core underlying logic supporting the exchange rate. Wen Bin, Chief Economist of China Minsheng Bank, said that the geographic concentration of China's exports has continued to decline markedly in recent years, and market diversification has materially strengthened trade resilience. Looking ahead, he said, with the continued optimization of the trade structure, the high growth rate of exports is likely to continue, and the trade surplus is also expected to remain at elevated levels, which will provide strong support for the RMB exchange rate.

Zhang Lin pointed out that China has maintained a sizable monthly trade surplus, which reached USD 112.5 billion in July, continuously generating FX supply. Especially as the RMB appreciation trend takes shape, companies worried about continued dollar holdings facing FX losses may accelerate FX settlement.