EX-99.1 3 b45267cfexv99w1.htm EX-99.1 INSIGHT NEWSLETTER

exv99w1

IN BRIEF

Net Asset Value per share*		US$15.78
Market Price*		US$13.75
Premium/Discount*			-12.86%
Fund size*		US$158.95

At December 31, 2002

		China Fund				MSCI Golden
		NAV				Dragon
One month return*			0.9	%			-6.3	%
One year return*			6.0	%			-19.7	%

*Source: State Street Corporation/Martin Currie Inc

MANAGER’S COMMENTARY

Unsettled by external factors such as the rising price of oil and signs of disappointing consumer sales in the US, China’s stockmarkets were weak in December. In contrast, domestic news was generally positive. As the world’s manufacturing migrates to China, exports show no signs of slowing (November exports were up 30% year-over-year). Even with an accelerating trend in imports, helped by the gradual effects of WTO entry (November’s imports were up 38% year-over-year), China is recording healthy monthly trade surpluses (US$2.5 billion in November). Foreign direct investment also appears undeterred by the slow global economy (realised FDI for January to November was US$48 billion, up by 14.6% year-on-year). To cap it all, the authorities announced on December 30 that China’s GDP growth for 2003 had reached 8.0%. That was even before the year had ended, illustrating the efficiency of Chinese statisticians ...

As of writing, China’s stockmarkets are starting to enjoy a New Year rally. If the number of institutional investors visiting Shanghai is anything to go by, the portents are good for some re-allocation of US and European assets towards China in 2003. Renewed signs of weakness in the US dollar are reflected in a pick up in the price of NT dollars and renminbi NDFs. The recent government re-shuffle in which the reformist chairman of the CSRC, Zhou Xiaochuan, has become governor of the central bank, increases the possibility that the renminbi will be allowed to appreciate. Your manager will continue to favour those companies with RMB assets or income and US dollar or HK dollar debts.

INVESTMENT STRATEGY

Your Fund is 96.7% invested with holdings in 59 listed companies (91.3% of the fund) and in 4 unlisted companies (5.4% of the Fund).

During the month, your managers added to positions in “H” shares Anhui Expressway, Anhui Conch Cement and Petrochina. There are signs of some recovery in confidence in Hong Kong-listed “P” shares (private-sector Chinese companies). So, in addition to adding to our positions in Golden Meditech (autologous blood recovery systems), Wanyou (fire safety equipment) and Tack Fat (clothing), we made new investments in Asia Zirconium (zirconium chemicals), Proview (monitors) and Tingyi (beverages and noodles). Among the Taiwan-listed China plays, we invested in China Metal, which is emerging as Asia’s largest castings maker, and Taiwan Hon Chaun, a leading manufacturer of packaging (such as PET bottles and tops) which is growing rapidly in China. In addition, we added to our positions in the industrial PC maker Advantech and the world’s number one maker of PC keyboards Chicony.

As for our sales, we took some profit on our investment in Chinese internet stocks, selling out of Sina. We also took our losses on three small companies — Geomaxima, Technology Ventures and Choice — whose businesses have lost direction. In the immortal words of W. C. Fields: “If at first you don’t succeed, try, try again. Then give up. No use being a damn fool about it.”

* Due to the Chinese New Year, we will not be publishing a separate February update. The Chinese character “yang” can be read as either sheep or goat. As managers who try to avoid herd instinct and see things a little differently, we find “Year of the Sheep” rather inauspicious. So we take this opportunity to wish our investors a happy and prosperous Year of the Goat.

Chris Ruffle

Source: Martin Currie Inc

We expect to see stronger deal flow in the market in 2003, helped by the gradual liberalisation of capital markets. We have signed a term sheet with the electronic components manufacturer that we mentioned in the last Insight. Final due diligence checks on legal and accounting are in progress and we expect to close the deal in the first quarter.

KOH Kuek Chiang
Asian Direct Capital Management

FUND DETAILS*

Market cap		$142.23m
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

ASSET ALLOCATION*

SECTOR ALLOCATION*

		% of				MSCI Golden
		net assets				Dragon %
Information technology			23.3				19.4
Financials			12.5				30.6
Consumer staples			10.5				0.6
Materials			11.9				6.4
Consumer discretionary			11.0				5.9
Industrials			12.5				14.6
Utilities			5.6				10.6
Energy			3.8				3.5
Health care			2.8				0.1
Telecommunications			2.8				8.2
Cash			3.3				—
Total			100.0				100.0

PERFORMANCE* (IN US$ TERMS)

		NAV				Market price
		%				%
One month			0.9				-0.1
Calendar year to date			6.0				12.2
3 years**			4.4				9.9

DIRECT INVESTMENTS* (7.3%)

A-S China Plumbing Products		Consumer discretionary			2.0	%
Captive Finance		Financials			1.9	%
Kowloon Development (34 HK)		Real estate			1.9	%
Moulin International (2004 CB)		Manufacturing			1.3	%
New World Sun City		Real estate			0.2	%

15 LARGEST LISTED INVESTMENTS* (48.5%)

TCL International		Information technology			7.2
Sohu Com		Information technology			5.3
Fountain Set Holdings		Materials			5.0
Brilliance China		Consumer discretionary			4.4
Fubon Financial Holdings		Financials			4.0
Chinadotcom Corporation		Information technology			2.6
Sinopac Holdings		Financials			2.6
Yanzhou Coal Mining		Energy			2.6
Synnex Technologies		Consumer discretionary			2.6
Ho Tung Chemical		Materials			2.4
Polaris Securities		Financials			2.0
Chungwha Telecom		Telecommunications			2.0
TPV Technology		Information technology			2.0
Zhejiang Expressway		Utilities			2.0
Ability Enterprise		Information technology			1.8

FUND PERFORMANCE

		One				Three				Year				One				Three**				Five**				Since#**
		month				months				to date				year				years				years				launch
The China Fund, Inc.			0.9				10.4				6.0				6.0				4.4				2.6				3.2
MSCI Golden Dragon			-6.3				3.3				-19.7				-19.7				-20.5				-6.7				—
Hang Seng Chinese Enterprise Index			4.3				5.3				13.2				13.2				0.2				-8.8				—

*Source: State Street Corporation/Martin Currie Inc. #The fund was launched on July 10, 1992. ** Annualised return

THE PORTFOLIO — IN FULL AT DECEMBER 31 2002,

Sector		Company (BBG ticker)				Price				Holding				Value $				% of portfolio
Hong Kong 42.2%
TCL International Holdings Ltd		1070 HK				HK$2.38					37,318,000				11,484,596				7.2	%
Fountain Set (Holdings) Ltd		420 HK				HK$4.30					14,750,000				8,038,353				5.0	%
Brilliance China Automotive Holdings, Ltd		1114 HK				HK$1.42					38,758,000				7,057,255				4.4	%
Yanzhou Coal Mining Co.		1171 HK				HK$3.10					10,286,000				4,088,786				2.6	%
TPV Technology, Ltd		903 HK				HK$2.48					9,968,000				3,163,511				2.0	%
Zhejiang Expressway Co., Ltd		576 HK				HK$3.00					8,044,000				3,094,421				2.0	%
Anhui Expressway		955 HK				HK$1.69					13,278,000				2,877,435				1.8	%
Wah Sang Gas		8035 HK				HK$0.75					27,778,000				2,671,458				1.7	%
Anhui Conch Cement		914 HK				HK$2.63					7,576,000				2,550,089				1.6	%
BYD Co		1211 HK				HK$15.7					1,225,000				2,474,018				1.6	%
China Rare Earth		0769 HK				HK$0.86					20,284,000				2,366,907				1.5	%
Tack Fat Group International Ltd		928 HK				HK$0.54					32,296,000				2,236,293				1.4	%
LifeTec Group, Ltd		1180 HK				HK$0.15					112,328,000				2,218,170				1.4	%
Petrochina Co., Ltd		857 HK				HK$1.55					10,000,000				1,987,549				1.2	%
Chen Hsong Holding, Ltd		57 HK				HK$1.83					6,630,000				1,560,040				1.0	%
Mainland Headwear Holdings		1100 HK				HK$2.35					5,000,000				1,506,690				0.9	%
Wanyou Fire Safety		8201 HK				HK$0.28					35,565,000				1,299,732				0.8	%
Asia Satellite Telecommunications Holdings		1135 HK				HK$9.15					999,000				1,172,122				0.7	%
Sino Golf Holdings Ltd		361 HK				HK$0.90					8,964,000				1,034,500				0.7	%
Natural Beauty Bio-Technology Ltd		157 HK				HK$0.43					18,320,000				998,391				0.6	%
Golden Meditech Co Ltd		8180 HK				HK$1.30					5,500,000				916,837				0.6	%
Arcontech, Corp		8097 HK				HK$0.21					18,386,000				488,027				0.3	%
Leefung-Asco Printers Holdings Ltd		623 HK				HK$0.89					3,602,000				411,074				0.3	%
Jackin International		630 HK				HK$0.17					16,192,000				352,968				0.2	%
Essex Bio-Technology Ltd		8151 HK				HK$0.10					25,418,166				329,194				0.2	%
Geomaxima Holdings, Ltd		702 HK				HK$0.14					14,390,000				271,247				0.2	%
Technology Venture Holdings Ltd		61 HK				HK$0.19					2,948,000				72,958				0.1	%
Tingyi (Cayman Islands) Holding Co.		322 HK				HK$2.03					622,000				161,511				0.1	%
Asia Zirconium		395 HK				HK$0.98					916,000				115,109				0.1	%
Taiwan 33.9%
Fubon Financial Holdings		2881 TT				NT$27.6					7,953,952				6,335,615				4.0	%
Sinopac Holdings Co		2890 TT				NT$14.6					9,746,754				4,092,793				2.6	%
Synnex Technologies International, Corp		2347 TT				NT$52.5					2,682,400				4,064,242				2.6	%
Ho Tung Chemical, Corp		1714 TT				NT$15.1					8,660,904				3,774,304				2.4	%
Polaris Securities Co., Ltd		6011 TT				NT$12.1					9,240,164				3,226,724				2.0	%
Chunghwa Telecom Co., Ltd		2412 TT				NT$51.5					2,146,000				3,189,582				2.0	%
Ability Enterprise Corp		2374 TT				NT$27.5					3,642,000				2,890,476				1.8	%
Cheng Shin Rubber		2105 TT				NT$41.5					2,330,000				2,790,621				1.8	%
Advantech Co., Ltd		2395 TT				NT$62.5					1,529,920				2,759,596				1.7	%
Chicony Electronics Co., Ltd		2385 TT				NT$40.8					1,996,000				2,350,268				1.5	%
Tong Yang Industry		1319 TT				NT$30.6					2,620,300				2,314,031				1.4	%
China Metal Products		1532 TT				NT$30.3					2,383,000				2,083,836				1.3	%
Merry Electronics		2439 TT				NT$36.0					1,951,400				2,027,429				1.3	%
Tainan Enterprises		1473 TT				NT$40.2					1,546,000				1,793,628				1.1	%
Lite On Technology Corp		2346 TT				NT$39.1					1,500,000				1,692,641				1.1	%
Eva Airways		2618 TT				NT$14.7					3,375,150				1,427,011				0.9	%
Phoenixtec Power Co., Ltd		2411 TT				NT$26.3					1,831,000				1,389,763				0.9	%
Kaulin Manufacturing		1531 TT				NT$38.2					1,226,000				1,351,608				0.8	%
Taiwan Hon Chuan Enterprise		9939 TT				NT$44.9					1,000,000				1,295,815				0.8	%
Lian Hwa Foods		1231 TT				NT$13.3					3,259,000				1,246,227				0.8	%
Taiwan Familymart		5903 TT				NT$34.8					1,019,000				1,023,411				0.6	%
Choice Lithograph, Inc		9929 TT				NT$8.90					2,867,110				736,429				0.5	%
B shares 3.2%
Shanghai Friendship Group Co., Inc		900923 CH				US$0.70					4,003,437				2,806,409				1.8	%
Luthai Textile Co., Ltd		200726 CH				HK$4.82					2,599,829				1,606,860				1.0	%
Shanghai Matsuoka, Co		900955 CH				US$1.03					663,850				700,362				0.4	%
New York 7.9%
Sohu.com Inc		Sohu US				US$6.16					1,320,386				8,450,470				5.3	%
Chinadotcom, Corp		China US				US$2.70					1,473,654				4,170,441				2.6	%
Singapore 2.2%
People’s Food Holding		PFH SP					S$0.74				4,400,000				1,877,036				1.2	%
Want Want Holdings, Ltd		WANT SP				US$0.60					2,794,000				1,662,430				1.0	%
Direct 7.2%
A-S China Plumbing Products, Ltd											450				3,199,999				2.0	%
Captive Finance Ltd											2,000,000				3,045,000				1.9	%
Kowloon Development		34 HK									6,520,000				2,947,086				1.8	%
Moulin International Holdings, Ltd (2004 CB)											2,000,000				2,003,922				1.3	%
New World Sun City, Ltd											83				299,908				0.2	%
Cash 3.3%

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 a least 50% of their assets in China; and (iii) companies organized in China. Under the 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 fundamental policy, 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)
www.chinafundinc.com

Important information: This newsletter is issued by Martin Currie Inc, Saltire Court, 20 Castle Terrace, Edinburgh, Scotland. Martin Currie Inc is 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.