Encouraged by the success of the pilot program of RMB trade settlement, China announced today that the cross-border RMB trade settlement scheme was expanded by increasing the number of eligible Chinese firms that can settle exports in RMB from 365 to 67,359.

RMB trade settlement reached RMB60bn in Oct, and total RMB deposits in Hong Kong reached RMB217bn by Oct and will likely reach RMB300bn by the end of 2010. That is, RMB deposits will account for about 10% of non-HKD deposits and 4.3% of total deposits in Hong Kong this month. We believe the new measures will further accelerate the growth of RMB trade settlement. RMB deposit growth in Hong Kong will likely be speeded up to more than RMB50bn per month. It is reasonable to expect that RMB deposits could rise to RMB2trn in Hong Kong within a few years (from the current RMB217bn), when 10% of China's international trade will likely be denominated in RMB. We see huge room for HK's RMB deposits to grow under the trade settlement channel.

RMB deposit inflows to Hong Kong will not only bring new trade settlement business for Hong Kong banks, but will also attract large capital inflows to trade RMB denominated assets over the medium term and thus further expanding the balance sheet of the banking system in Hong Kong. We expect these inflows to further boost asset prices, and we remain bullish on high-end properties and banks in Hong Kong

• [Editor:editor]