China: More support for CNH and 2H CNY drivers: Falling FX reserves signal a narrower trade surplus

Research evidence excerpt

China: More support for CNH and 2H CNY drivers: Falling FX reserves signal a narrower trade surplus

Tingting Ge Asia Pacific Economic Research J P M O R G A N(852) 2800-0143 08 July 2026

tingting.ge@jpmorgan.com

high-level financial opening and facilitate RMB liquidity management for overseas official

institutions. The HKMA has already implemented the tool, with the first agreement signed and

an initial batch of transactions completed.

Second, Deputy Governor and SAFE head Zhu Hexin signaled further steps to support outbound

activity via simpler FX administration for ODI and external debt (and related conversions),

optimized frameworks for FX loans and cross-border equity incentives, and a new batch of QDII

quotas.

Third, Governor Pan announced additional measures on 7 July at the Hong Kong FIC and Bond

Connect Summit to bolster offshore CNH liquidity and RMB internationalization, including: (1)

expanding Southbound Bond Connect by raising the annual net investment quota from RMB

500bn to RMB 800bn and adding Southbound bonds into repo-eligible collateral; (2) supporting

a 5-year offshore RMB government bond futures contract, upgrading Bond Connect toward a

broader trading infrastructure for bonds/FX/money markets; (3) increasing the HKMA RMB

liquidity facility from RMB 200bn to RMB 500bn and extending usage up to three years,

alongside the rollout of the offshore central bank repo facility in Hong Kong; and (4)

strengthening RMB trade settlement and local-currency settlement linkages, including enabling

direct offshore RMB–IDR trading etc.

Near-term catalysts affecting CNY exchange rates

A common investor question is how much further CNY can appreciate after a 3% gain vs. USD

in 1H (vs. +4.4% in 2025) and a 4.9% gain on a CFETS-basket basis (vs. -2% in 2025). While