China Forex country Report


With its population standing at over 1.3 billion China has recently earned the title of the second largest economy in the world in terms of GDP and it is also increasingly playing an important and influential role in the global economy. This is why we are dedicating a special forex country report to China and the enormous possibilities that its forex landscape opens up for brokers and traders alike.

Market reforms in China were initiated in 1978 and the country has since being moving away from the centrally planned economy towards a more market based model, however it is still largely not a free market economy and hence the country remains an unusual place to start a business, especially since political structure is closely tied to economic growth. Nevertheless, the Chinese government is actively fostering and sponsoring the growth of Chinese industry and its expansion overseas, while at the same time protecting domestic industries, which gives it an edge as a nation over the others in the BRICs category.

China is by all accounts and measures a worldwide economic powerhouse not least due to its relatively high literacy rate, huge labour force and high life expectancy compared with other developing regions. In addition, there are more internet users in China than in any other country, fuelling the huge potential for industries such as forex trading, given also the financial astuteness of the Chinese population at large.

In fact China is becoming highly dependent on the foreign exchange market which has gradually turned into an important part of China’s national economy, generating billions of dollars of trading volumes each year thanks to the literally millions of Chinese Forex traders.

Symbolised on the forex market as CNY, China’s official currency is the Renminbi Yuan which is usually referred to as Yuan. The Chinese Central Bank is responsible for setting the exchange rates for the Yuan and in doing so it takes into account several factors, such as political and economic developments in the international scene which bear a significant impact on China. The Yuan is fast becoming one of the mostly traded currencies in the world, aided also by the quick expansion of the Chinese foreign exchange market. At the same time the Yuan’s popularity on the Forex market also helps popularize international trading in China.

Forex Landscape

For a long time permeating the Chinese market was almost impossible for western companies and this was also true for forex companies and brokers as well, since the Chinese business environment bears little resemblance to any other model in the world.  As China is opening up to the world of international forex trading an enormous potential is revealed, although hindrances still remain since the Chinese government continues to attempt to impose strict restrictions on non-domestic companies operating in China, even at times resorting to practices of seizing the financial assets of companies participating in joint ventures with Chinese organizations or blocking the bank accounts of foreign companies operating in the territory.

In order to avoid unnecessary legal conundrums but still manage to gain a  toehold in the Chinese markets many brokers resort to the method of  working with local representatives based in China. Such representatives operate largely as introducing brokers and they manage to built up a network of clients who trust them and will work with them on an ongoing basis. Such direct relationships based on personal trust are very commonplace in China, where it is more usual for investors to work with networks of trusted representatives, rather than to approach a company directly.

Working with representatives is considered an independent operation and therefore remains immune from government interventions and restrictions, unlike in the case of a joint venture or a partnership between a local and an overseas company, both of which are still illegal in China. Despite the expressed difficulties and the fact that there is no clarity in the regulations on the margin forex status as a tradable class of assets for institutional investors and retailers, the sheer size of China continues to attract investors from all over the world and because the Chinese economy does clearly aim towards the creation of new wealth, with new cash always come new opportunities for investments.

China Foreign Exchange Market

The Chinese Yuan is currently enjoying substantial volumes of trading as a currency in the global forex market, fuelled also by the constant growth of international trade in China.
A number of banks as well as foreign exchange trading agencies carry out the functions of foreign exchange trading in China and in general terms they offer competitive rates as well as a good overall standard of service to their clients. Moreover, foreign exchange trading can also be carried out over the Internet on a 24/7 basis.

Reliable information about the Chinese foreign exchange market as well as the foreign exchange rates prevailing in the market can be obtained through the numerous website which operate in China. Moreover, forex traders who trade retail forex online can get information from the Chinese foreign exchange agencies in China thus forex investors in China are facilitated in achieving their goals.

The Chinese financial market is very vibrant and it mainly centers around two major stock exchanges based in Shenzhen and in Shanghai, which combined account for more than 1600 registered companies. In fact, the Shanghai Stock exchange is currently the 5th largest in the world in terms of volumes, being driven largely by the Chinese retail investors, which make up over 70% of the trading volumes.

Moreover, China is the biggest commodity futures market because the usage of commodities in China is huge since the country is the largest manufacturer and supplier in the world, and this is why the three commodity future exchanges of China – Zhengzhou, Dalian and Shanghai exhibit massive daily turnovers.

What initially fuelled the popularity of Forex trading in China was the increase in the number of internet users in the country, which made the forex market more accessible to the wide population. The possibility of high returns and the low level of capital entry required lured many to retail online forex trading since they saw the many opportunities for investment that are created.

Forex Regulation in China

The China Banking Regulatory Commission (CBRC) which is the principal industry regulator, as well as the Chinese government both regard that forex is a highly leveraged product and that as such it carries too much exposure. Authorities are concerned because if a large proportion of the population were to lose a lot of money at once, then, given the great size of the Chinese population this could have a profound impact and lead to social unrest. The situation is implicated further due to the risk aversion and gambling nature of the Chinese as a nation, as well as due to the largely unequal distribution of wealth in the country. Moreover, the Chinese due to the lack of a reliable and inclusive social welfare system in China, tend to amass a lot of savings to be able to provide for themselves at a time of need and these savings could be used for trading purposes.

At the same time however and interestingly enough, forex trading is also regarded as a fairer game to play since because the Chinese market is so big it opens the potential for clients to become better off without the need for and in the absence of market manipulators. In any case opening up to Over the Counter transactions is seen as a gigantic step for the forex and futures trading in China.

The growth in the retail forex sector is also attributed to the emerging trend of the commerce in goods and services being done with China being priced in yuan instead of dollars as was the case before. Spurred by the rapid increase in yuan trade settlements the Chinese government as well as many regional fund managers are betting on the yuan becoming the new yen in Asia. And since China is the world’s number one trading country the prospects for the Yuan are truly endless.

Foreign Exchange Institutions and players

Currently China’s Forex market is divided into the wholesale market which is carried out between banks and the retail market which is open to all. Moreover, the main stakeholders and market participants include the CFETS which besides functioning as a trading platform for inter-bank markets, is also responsible for market clearing as well as for providing the supervisory authorities with market information. The PBOC and SAFE are the regulatory and supervisory authorities in the Chinese forex landscape, while an important role is also played by the designated FX banks and non-banking financial institutions and non-financial enterprises, which engage in foreign exchange business after being authorized by SAFE.  Finally the forex market is largely shaped by the enterprises that can earn and spend Forex and of course the individuals who have any forex trading needs.

Although there are good prospects, there are also hindrances to the further development of the Chinese forex market, the principal amongst them being the lack of the much needed exchange rate flexibility and the existence of a rigid exchange rate system based on compulsory FX settlement. For the forex market in China to grow further the need to be addressed is the creation of a market platform wherein the market forces of demand and supply will be allowed to determine the RMB values of foreign currencies, leading to more flexibility, diversification and a more competitive and efficient market operation.

Top Forex Brokers in China

Most western forex brokerages have recognized the huge potential offered by the Chinese market and the Chinese prospective investors and this is why they are making huge efforts to attract affiliates and introducers of business in China, also trying to access the mainland Chinese market via establishing a foothold in Hong Kong or in Australia, to be able to convey to traders the safety that comes from being regulated by a reputable regulator such as Australia’s ASIC.

The competition amongst brokers is fierce due to the highly lucrative nature of gaining Chinese traders, because they have disposable income through their savings and are more active  as traders, not only as investment, but even as a hobby, also showing more willingness than Western traders to take risks in order to gain more. This is why most brokers who want to catch the attention of the Chinese market are staging large scale marketing campaigns in this effect. One could even argue that the high profile sports sponsorships which have become a trend in terms of the offline advertising of forex brokers and which are usually signed with popular football teams, as well as Formula 1 racing teams are being signed exactly because such teams are very popular with the Chinese audience and can help a forex brokerage attain more visibility and recognition with their targeted Chinese clientele.

So, if you are a Chinese trader and are looking for reliable, reputable firms offering good profit opportunities in order to invest your money have a look at the table below as comprised by in order to be able to select a brokerage that offers its services in your region. The brokerages featured here are all professional and also cater for the needs of Chinese investors specifically by having fostered relationships of trust with their local associates, having a full understanding of the specific peculiarities of the Chinese forex landscape and by offering Chinese speaking support and assistance in an accessible and prompt manner, enhancing your trading experience and maximizing your profit potential.