RMB trade settlements settled through HK

Eleven percent of China's trade in 1Q12 were RMB trade settlements that were mostly settled through Hong Kong.

According to Barclays Research, under current arrangements of the RMB cross-border trade settlements scheme, all foreign companies worldwide can already settle trade in RMB with any company in China for import/export services, and mainland enterprises with import/export qualifications for goods.

"The government may extend the scope of the RMB trade settlements scheme to include trade not involving the Mainland or Hong Kong (i.e. non-mainland/HK companies settling trade with other non-mainland/HK companies in RMB) as the RMB internationalises. However, we believe the adoption of the RMB as an international trade currency will likely develop over the longer term. Currently, CNH remains illiquid relative to other key trading currencies (e.g. US$, Euro, Yen) and foreign import/exporters will need to manage FX hedging costs," says Barclays analyst Tom Quarmby.