EX-99.1 3 b43213cfex99-1.htm NEWSLETTER

ex99-1

The China Fund, Inc. (CHN)
May 2002
In brief...		at 30 April, 2002

Net Asset Value per share*		US$16.79
Market Price*		US$14.87
Premium/Discount*		(11.4%)
Fund size*		US$169.1m

*Source: State Street Corporation/Martin Currie Inc

		China Fund NAV				MSCI Golden Dragon
1 month return*			3.8				2.3
1 year return*			16.4				-3.4

Manager’s commentary

As doubts grew about the pace of US growth in the second half of 2002, Asian stock markets saw a change in April. Stocks in the export-led economies of Taiwan and Korea gave back some of their earlier gains. Meanwhile, money started to flow back into China, a relative laggard this year in terms of its stockmarket performance. This renewed interest is based on the resilience and size of China’s domestic market, as well as the potential pick up in international competitiveness that countries with pegged currencies should enjoy as the US dollar weakens. A weaker currency against non-US currencies may also help in alleviating deflationary pressures in China. In the long-term we still believe that the renminbi will appreciate against the US dollar. But no radical moves are likely to be taken on the currency, or indeed on any other sensitive matters, ahead of the 16th Party Congress in October. Jiang Zemin’s successor as Party Secretary, Hu Jin Tao, has now been introduced to his main counterparts in the US and Europe. However, the leadership’s summer deliberations by the seaside at Beidaiho are still likely to be more fraught than normal.

China’s economic growth accelerated to 7.6% in Q1 2002 from 6.6% in Q4 2001. This was a result of good growth in exports and fixed asset investment. While skepticism of macro numbers from China is justified, the trend is clear. The Q1 2002 statistics for power generation (+9.4% year-on-year), a good proxy for economic activity, tell the same story. Sustained trade surpluses and the inflow of foreign direct investment have now boosted foreign exchange reserves to US$223.5 billion and encouraged a more confident tone in official comments on the economy.

Chris Ruffle

Source: Martin Currie Inc

Investment stategy

Your fund is 98.4% invested with holdings in 54 companies. Of the portfolio, 36.3% is invested in Taiwan, where holdings are biased to ‘China plays’ and companies focused on the domestic market, rather than exporters. There is also 5.7% in direct investments, which will increase in May with the investment in an unlisted leasing company, Captive.

The main change to the portfolio in April was a decision to buy China Mobile. Your listed investment manager has not invested in telecom stocks since we took over management last year. However, we believe that pessimism on the sector has now peaked and the stock of China’s leader in mobile telephony has fallen to a reasonable level; it should be a prime investment target as large institutional funds increase their weightings in emerging markets. Among the small, entrepreneurial companies, we have taken profits on Chaoda, Euro-Asia and Global Biochem. Meanwhile, we have shifted funds to the fast growing Singapore-listed pork processor, People’s Food, which should receive greater recognition when it lists in Hong Kong. We closed out the NT dollar hedge as the yen appeared to have stabilised against the US dollar.

No new direct investments were closed in April. The direct investment manager is in various stages of due diligence and negotiations regarding several direct investments. These potential investments are in manufacturing, distribution and financial services.

at 30 April, 2002

Fund details*

Market cap		US$151.1m
Shares outstanding		10,073,173 shares
Exchange listed		NYSE
Listing date		July 10, 1992
Investment manager		Martin Currie Inc
Direct investment manager		Asian Direct Capital Management

15 largest listed investments* (49.2%)

YanzhoTCL International		Information technology			6.6	%
Yanzhou Coal Mining		Energy			4.5	%
Chunghwa Telecom		Telecommunications			4.3	%
Taipei Bank		Financials			4.2	%
Phoenixtec Power		Consumer staples			4.0	%
Zhejiang Expressway		Utilities			3.4	%
Ho Tung Chemical		Materials			2.8	%
Pacific Construction		Consumer discretionary			2.8	%
Chinadotcom		Information technology			2.6	%
Synnex Technologies		Consumer discretionary			2.6	%
Brilliance China		Consumer discretionary			2.5	%
Polaris Securities		Financials			2.4	%
Shanghai Friendship Group		Consumer staples			2.2	%
Want Want Holdings		Consumer staples			2.2	%
Fountain Set Holdings		Materials			2.1	%

Sector allocation*

		% of				MSCI Golden
		net assets				Dragon %
Information technology			19.9				25.4
Consumer discretionary			11.5				5.5
Industrials			11.5				17.7
Consumer staples			10.5				0.4
Financials			9.6				29.4
Utilities			8.2				6.8
Materials			6.9				4.8
Telecommunications			6.8				8.3
Diversified			6.0				—
Energy			4.5				1.6
Health care			3.0				0.1
Cash			1.6				—
Total			100.0				100.0

Asset allocation*(%)

Direct investments* (5.7%)

Kowloon Development		Real estate			2.3	%
A-S China Plumbing Products		Consumer disc			1.9	%
Moulin International (2004 CB)		Manufacturing			1.2	%
New World Sun City		Real estate			0.3	%

Performance* (in US$ terms)

		NAV				Market price
		%				%
One month			3.8	%			5.2	%
Calendar year to date			11.2	%			19.7	%
3 years **			13.5	%			17.2	%

Fund performance

		One				Three				Year				One				Three**				Five**				Since#**
		month				months				to date				year				years				years				launch
The China Fund, Inc.			3.8				7.2				11.2				16.4				13.5				-0.5				3.9
MSCI Golden Dragon			2.3				5.7				5.2				-3.4				-6.9				-5.4				—
Hang Seng Chinese Enterprise Index			1.0				7.4				16.7				-0.4				1.3				-15.1				—

Source: * State Street Corporation/MC Inc. # The Fund was launched on July 10, 1992 ** Annualized Return

Performance in perspective

The China Fund Inc. Premium/discount

Dividend History Chart*

All charts are based on 30 April, 2002.
*Source: State Street Corporation

The portfolio — in full at 30 April, 2002

Sector		Company (code)				Price				Holding				Value $				% of portfolio
Hong Kong 44.7%
TCL International Holdings Ltd		1070 HK				HK$2.35					37,318,000				11,244,613				6.6	%
Yanzhou Coal Mining Co.		1171 HK				HK$3.15					19,000,000				7,613,107				4.5	%
Zhejiang Expressway Co., Ltd		576 HK				HK$2.25					19,814,000				5,716,273				3.4	%
Brilliance China Automotive Holdings, Ltd		1114 HK				HK$1.33					24,300,000				4,175,124				2.5	%
Fountain Set (Holdings) Ltd		420 HK				HK$1.87					15,250,000				3,656,535				2.1	%
TPV Technology, Ltd		903 HK				HK$3.13					8,764,000				3,511,646				2.1	%
Shangri-La Asia, Ltd		69 HK				HK$7.50					3,600,000				3,461,960				2.1	%
China Rare Earth Holdings, Ltd		769 HK				HK$2.08					12,600,000				3,352,331				2.0	%
Chaoda Modern Agriculture		682 HK				HK$2.83					8,500,000				3,078,901				1.8	%
Asia Satellite Telecommunications Holdings		1135 HK				HK$12.10					1,693,000				2,615,787				1.6	%
Sinopec Yizheng Chemical		1033 HK				HK$1.33					14,694,000				2,505,821				1.5	%
Beijing Capital International Airport Co., Ltd		697 HK				HK$1.86					10,384,000				2,476,486				1.4	%
Wah Sang Gas		8035 HK				HK$1.05					16,998,000				2,288,471				1.4	%
Geomaxima		702 HK				HK$1.22					12,400,000				1,939,723				1.1	%
Natural Beauty		157 HK				HK$1.07					13,200,000				1,827,915				1.1	%
China Overseas Land & Investment, Ltd		688 HK				HK$0.94					14,200,000				1,711,490				1.0	%
Euro-Asia Agriculture		932 HK				HK$2.65					4,900,000				1,664,946				1.0	%
Global Bio-chem Technology Group Co., Ltd		809 HK				HK$2.73					4,700,000				1,657,253				1.0	%
Anhui Expressway		955 HK				HK$1.81					6,950,000				1,612,953				0.9	%
China Mobile		941 HK				HK$25.55					480,000				1,572,499				0.9	%
Mainland Headwear Holdings		1100 HK				HK$2.65					5,000,000				1,554,677				0.9	%
LifeTec Group, Ltd		1180 HK				HK$0.20					65,346,000				1,499,790				0.9	%
China Travel		308 HK				HK$1.66					7,218,000				1,443,776				0.8	%
Arcontech, Corp		8097 HK				HK$1.16					9,000,000				1,396,324				0.8	%
Chen Hsong Holding, Ltd		57 HK				HK$1.35					6,630,000				1,181,644				0.7	%
Sunway International Holdings		58 HK				HK$0.39					12,664,000				617,039				0.4	%
Jackin International		630 HK				HK$0.28					5,000,000				179,509				0.1	%
Automated Systems Holdings, Ltd		771 HK				HK$2.33					368,000				103,807				0.1	%
Taiwan 36.3%
Chunghwa Telecom Co., Ltd		2412 TT				NT$51.50					4,908,000				7,290,510				4.3	%
Taipei Bank		2830 TT				NT$24.20					10,115,400				7,060,648				4.2	%
Phoenixtec Power Co., Ltd		2411 TT				NT$32.20					7,595,000				6,834,843				4.0	%
Ho Tung Chemical, Corp		1714 TT				NT$21.20					7,732,950				4,728,542				2.8	%
Pacific Construction Co., Ltd		2506 TT				NT$4.98					32,841,000				4,717,283				2.8	%
Synnex Technologies International, Corp		2347 TT				NT$48.30					3,084,000				4,296,429				2.6	%
Polaris Securities Co., Ltd		6011 TT				NT$17.30					8,042,000				4,012,882				2.4	%
China Synthetic Rubber, Corp		2104 TT				NT$12.60					9,919,440				3,604,988				2.1	%
Choice Lithograph, Inc		9929 TT				NT$19.60					6,273,000				3,546,316				2.1	%
Bank Sinopac		2839 TT				NT$17.00					7,186,991				3,432,362				2.0	%
Advantech Co., Ltd		2395 TT				NT$88.00					959,100				2,434,404				1.4	%
Tong Yang		1319 TT				NT$20.90					3,532,000				2,129,184				1.3	%
Ability Enterprise Corp		2374 TT				NT$33.30					1,700,000				1,632,824				1.0	%
Lian Hwa Foods		1231 TT				NT$16.60					3,392,000				1,624,090				0.9	%
Cheng Shin Rubber		2105 TT				NT$25.00					2,000,000				1,517,162				0.9	%
Elan Microelectronics		2458 TT				NT$48.00					1,000,000				1,263,340				0.8	%
Tainan Enterprises		1473 TT				NT$41.80					1,000,000				1,246,034				0.7	%
B shares 5.1%
Shanghai Friendship Group Co., Inc		900923 CH				US$1.05					3,530,000				3,717,090				2.2	%
Luthai Textile Co., Ltd		200726 CH				HK$8.93					1,999,869				2,289,873				1.4	%
Shanghai Matsuoka, Co		900955 CH				US$1.66					981,850				1561,142				0.9	%
Weifu High Technology		200581 CH				HK$6.10					1,397,550				1,039,330				0.6	%
New York 2.6%
Chinadotcom, Corp		China US				US$2.48					1,655,600				4,387,340				2.6	%
Direct 5.7%
Kowloon Development											6,520,000				3,908,297				2.3	%
A-S China Plumbing Products, Ltd											450				3,199,999				1.9	%
Moulin International Holdings, Ltd (2004 CB)											2,000,000				2,003,922				1.2	%
New World Sun City, Ltd											83				608,787				0.3	%
Singapore 4.0%
Want Want Holdings, Ltd		WANT SP				US$1.93					1,900,000				3,667,000				2.2	%
People’s Food Holding		PFH SP				SG$1.02					4,400,000				2,476,206				1.5	%
Asia Dekor Holdings, Ltd		ADEK SP				US$0.10					7,374,000				589,920				0.3	%
Cash 1.6%

Objective

The investment objective of the Fund is to achieve long term capital appreciation through investment in companies and other entities with significant assets, investments, production activities, trading or other business interests in China or which derive a significant part of their revenue from China.

The Board of Directors of the Fund has adopted an operating policy of the Fund, effective June 30, 2001, that the Fund will invest at least 80% of its assets in China companies. For this purpose, “China companies” are (i) companies for which the principal securities trading market is in China; (ii) companies for which the principal securities trading market is outside of China or in companies organised outside of China, that in both cases derive at least 50% of their revenues from goods or services sold or produced, or have at least 50% of their assets in China; and (iii) companies organized in China. Under the new policy, China will mean the People’s Republic of China, including Hong Kong, and Taiwan. The Fund will provide its stockholders with at least 60 days’ prior notice of any change to the policy described above.

The investment objective, which applies to not less than 65% of the Fund’s assets as set out in the Fund’s prospectus dated July 10, 1992, remains in place. The fundamental policy is the same as the operating policy set out above, except that China only includes the People’s Republic of China.

Contacts

The China Fund, Inc.
c/o State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Tel: (1) 888 CHN-CALL (246 2255)
http://www.chinafundinc.com
 

Important Information: This newsletter is issued by Martin Currie Inc, Saltire Court, 20 Castle Terrace, Edinburgh, Scotland. Regulated by the FSA and registered with the Securities Exchange Commission as an investment adviser. Information herein is believed to be reliable but has not been verified by Martin Currie Inc. Martin Currie Inc makes no representation or warranty and does not accept any responsibility in relation to such information or for opinion or conclusion which the reader may draw from the newsletter. This newsletter does not constitute an offer of shares. Martin Currie Inc, its ultimate and intermediate holding companies, subsidiaries, affiliates, clients, directors or staff may, at any time, have a position in the market referred to herein, and may buy or sell securities, currencies, or any other financial instruments in such markets. The information or opinion expressed in this newsletter should not be construed to be a recommendation to buy or sell the securities, commodities, currencies, or financial instruments referred to herein. Investors are advised that they will not generally benefit, from the rules and regulations of the United Kingdom Financial Services and Markets Act 2000 and the Financial Services Authority for the protection of investors nor benefit from the United Kingdom Financial Services Compensation Scheme nor have access to the Financial Services Ombudsman in the event of a dispute. Investors will also have no rights of cancellation under the FSA’s Conduct of Business Sourcebook of the United Kingdom. Please remember that past performance is not necessarily a guide to the future. Market and currency movements may cause the value of the shares and the income from them to fluctuate and you may get back less than you invested when you decide to sell your shares.