EX-99.1 3 b47472cfexv99w1.htm INSIGHT NEWSLETTER

exv99w1

IN BRIEF

Net asset value per share*		US$23.99
Market price*		US$27.78
Premium/discount*			15.79	%
Fund size*		US$241.68

At 31 July 2003

		China Fund				MSCI Golden
		NAV				Dragon
One month return*			12.8	%			9.3	%
One year return*			53.7	%			6.1	%

*Source: State Street Corporation/Martin Currie Inc

MANAGER’S COMMENTARY

The heat is on. I am not referring merely to the weather, although temperatures here in Shanghai did hit a 70-year record last month, but rather the currency. Open season has been declared on the renminbi as Greenspan, Snow and a variety of other US politicos and commentators queued up to call for revaluation. Our recent company visits (we laboured through the summer heat to visit over 70 companies during July) showed us that Chinese companies are generally unprepared for any move in the currency. The government will have to prepare the business community before anything happens, and this could take some months. Nevertheless, your managers may further increase the bias in the portfolio towards those companies benefiting from domestic demand, rather than exports.

Domestic consumption in China has recovered quickly after SARS. The scenes I witnessed at a car promotion in Nanjing last week would have gladdened the heart of any car maker or salesman. Even in Taiwan, which has been down for so long, domestic resorts are full and there are clear signs of life in the long-moribund property market. The Taiwanese invested heavily in bond funds and foreign exchange deposits. Now that the outlook for bonds is doubtful and confidence in the US$ is waning, cash is starting to flow back into property and stocks.

We expected some temporary slowdown over the summer. This did not happen, and the equation now seems clear: rapid recovery in economic growth + good interim results + super-low interest rates + growing confidence in local currencies = new bull market. There are risks, some incalculable (North Korea, random terrorism, return of SARS) and some predictable (increasing equity supply, US protectionism in a presidential election year). Despite these risks the outlook remains positive.

INVESTMENT STRATEGY

Given bullish sentiment, it will be no surprise that your Fund is almost fully invested (96.7%) with holdings in 62 stocks, of which 3 are unlisted. We made few changes to the portfolio in July. This is partly because we are happy with our positions and partly because we want to minimise tax liabilities for our investors while the fund is carrying large unrealised gains. We took some profits on Chinadotcom. We used the proceeds to invest in the Comba Telecom IPO, and to participate in the rights of liver-drug maker Lifetech. We also switched some cash into Taipei-listed laggards such as the digital camera maker Altek and high-yielding Chunghwa Telecom.

Chris Ruffle, Martin Currie Inc

DIRECT INVESTMENT MANAGER’S COMMENTARY
On July 11, 2003, A-S China Plumbing Products was listed on the GEM Market (Second Board) in Hong Kong. This listing will provide an exit route for the last remaining investment made by the Fund’s previous Direct Investment Manager. Captive Finance has recorded a good half-year result. The company continues to take expansion initiatives to develop new business. Tomoike Industrial continues to perform well as orders for its backlight units from mobile phone manufacturers are very strong. The company is planning to open new production facilities in China.

The Chinese economy continues to experience rapid growth that in turn is generating strong demand for capital from proven businesses needing to fund expansion. We are working towards closing a number of deals providing expansion capital to profitable companies with proven business models. Such investments are expected to generate a rapid and transparent return for investors with a clear path to liquidity and exit.

There is currently considerable speculation concerning a possible revaluation of the renminbi. The companies in the unlisted portfolio should benefit from such a move in the long run as the Chinese economy continues to expand.

KOH Kuek Chiang, Asian Direct Capital Management

FUND DETAILS*

Market cap		$282.05m
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			22.3				24.04
Industrials			19.0				14.14
Consumer discretionary			14.4				7.21
Materials			10.4				5.88
Utilities			8.1				9.74
Consumer staples			7.6				0.71
Financials			5.1				26.28
Telecommunications			3.7				7.56
Energy			2.9				4.34
Health care			2.9				0.10
Real estate			0.3				—
Cash			3.3				—
Total			100.0				100.0

PERFORMANCE* (IN US$ TERMS)

		NAV				Market price
		%				%
One month			12.8				20.1
Calendar year to date			51.8				102.0
3 years **			19.1				39.2

DIRECT INVESTMENTS* (3.1%)

Captive Finance		Financials					1.2	%
Tomoike Industrial (H K) Ltd		Industrials					1.0	%
A-S China Plumbing Products (8262 HK)		Industrials					0.6	%
Kowloon Development (34 HK)		Real estate					0.3	%

15 LARGEST LISTED INVESTMENTS* (50.7%)

Sohu Com Inc		Information technology			11.7
Chinadotcom Corporation		Information technology			4.9
Fountain Set Holdings		Materials			4.7
TCL International		Consumer discretionary			3.3
Chaoda Modern Agriculture		Consumer staples			3.2
Yanzhou Coal Mining		Energy			2.9
Shenzhen Expressway		Utilities			2.6
Sinotrans Limited		Industrials			2.6
BYD Co		Industrials			2.6
Anhui Conch Cement		Materials			2.2
Anhui Expressway		Utilities			2.1
Xinao Gas Holdings		Utilities			2.0
Merry Electronics		Consumer discretionary			2.0
China Metal Products		Materials			2.0
Synnex Technology		Consumer discretionary			1.9

FUND PERFORMANCE

		One				Three				Year				One				Three**				Five**				Since#**
		month				months				to date				year				years				years				launch
The China Fund, Inc.			12.8				43.7				51.8				53.7				19.1				23.5				7.0
MSCI Golden Dragon			9.3				25.8				19.5				6.1				-13.6				3.2				—
Hang Seng Chinese Enterprise Index			11.4				37.8				52.7				48.5				11.2				14.7				—

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

PERFORMANCE IN PERSPECTIVE

     

THE CHINA FUND INC. PREMIUM/DISCOUNT

     

DIVIDEND HISTORY CHART*

     

All charts as of 31 July, 2003. *Source: State Street Corporation

THE PORTFOLIO — IN FULL AT 31 JULY 2003

Sector		Company (BBG ticker)				Price				Holding				Value $				% of portfolio
Hong Kong 45.2%
Fountain Set (Holdings) Ltd		420 HK				HK$6.95					12,750,000				11,361,670				4.7	%
TCL International Holdings Ltd		1070 HK				HK$1.93					32,318,000				7,955,965				3.3	%
Chaoda Modern Agriculture (Holdings) Ltd		682 HK				HK$1.47					41,038,000				7,787,446				3.2	%
Yanzhou Coal Mining Co.		1171 HK				HK$3.90					13,786,000				6,893,663				2.9	%
Sinotrans Limited-H		598 HK				HK$2.45					20,065,000				6,303,074				2.6	%
BYD Co		1211 HK				HK$19.35					2,525,000				6,264,544				2.6	%
Shenzhen Expressway Co., Ltd		548 HK				HK$2.30					21,494,000				6,338,584				2.6	%
Anhui Conch Cement		914 HK				HK$5.40					7,726,000				5,349,283				2.2	%
Anhui Expressway Co., Ltd		995 HK				HK$2.18					17,778,000				5,014,790				2.1	%
Xinao Gas Holdings Ltd		2688 HK				HK$2.75					13,976,000				4,927,910				2.0	%
Brilliance China Automotive Holdings, Ltd		1114 HK				HK$2.38					12,882,000				3,922,781				1.6	%
TPV Technology, Ltd		903 HK				HK$3.00					9,968,000				3,834,215				1.6	%
Tack Fat Group International Ltd		928 HK				HK$0.78					37,296,000				3,729,959				1.6	%
Wah Sang Gas		8035 HK				HK$0.91					27,778,000				3,276,694				1.4	%
Proview Intl Holdings Ltd		334 HK				HK$1.56					17,644,000				3,529,140				1.4	%
Comba Telecom Systems Consulting Holdings		2342HK				HK$2.38					10,000,000				3,045,165				1.2	%
Jingwei Textile Machinery Co., Ltd		350 HK				HK$2.88					7,436,000				2,741,097				1.1	%
Natural Beauty Bio-Technology Ltd		157 HK				HK$0.61					29,320,000				2,293,195				1.0	%
Wanyou Fire Safety		8201 HK				HK$0.34					53,565,000				2,369,449				1.0	%
LifeTec Group, Ltd		1180 HK				HK$0.10					168,492,000				2,246,776				0.9	%
Golden Meditech Co Ltd		8180 HK				HK$1.45					11,950,000				2,221,688				0.9	%
Beijing Capital International Airport Co., Ltd		694 HK				HK$2.18					7,520,000				2,097,125				0.9	%
Sino Golf Holdings Ltd		361 HK				HK$1.49					10,953,000				2,092,505				0.9	%
Asia Zirconium		395 HK				HK$0.90					8,428,000				972,555				0.4	%
Mainland Headwear Holdings		1100 HK				HK$2.73					1,626,000				568,112				0.2	%
Arcontech, Corp		8097 HK				HK$0.17					18,386,000				407,831				0.2	%
Essex Bio-Technology Ltd		8151 HK				HK$0.10					24,278,166				342,417				0.1	%
Taiwan 28.6%
Merry Electronics		2439 TT				NT$51.50					3,254,208				4,877,524				2.0	%
China Metal Products		1532 TT				NT$31.20					5,186,000				4,709,057				1.9	%
Chicony Electronics Co., Ltd		2385 TT				NT$60.50					2,500,960				4,403,611				1.8	%
Synnex Technologies International, Corp		2347 TT				NT$53.50					2,950,640				4,594,273				1.9	%
Polaris Securities Co., Ltd		6011 TT				NT$17.40					7,740,164				3,919,641				1.6	%
Wintek Corp.		2384 TT				NT$26.50					5,040,000				3,887,078				1.6	%
Ability Enterprise Corp		2374 TT				NT$35.80					3,714,840				3,870,526				1.6	%
Taiwan Green Point Enterprises Co., Ltd		3007 TT				NT$73.50					1,831,200				3,917,148				1.7	%
Fubon Financial Holdings		2881 TT				NT$26.00					3,953,952				2,991,931				1.2	%
Data Systems Consulting Co		2477 TT				NT$27.90					3,586,000				2,911,799				1.2	%
Taiwan Hon Chuan Enterprise		9939 TT				NT$50.50					2,136,000				3,139,348				1.3	%
China Motor Co		2204 TT				NT$67.50					1,640,000				3,221,769				1.3	%
Cheng Shin Rubber		2105 TT				NT$44.60					2,516,400				3,266,340				1.4	%
Vanguard International Semiconductor Corp.		5347 TT				NT$6.60					14,000,000				2,689,173				1.1	%
Ho Tung Chemical, Corp		1714 TT				NT$15.40					6,395,904				2,866,616				1.2	%
Eva Airways		2618 TT				NT$11.80					6,991,150				2,400,919				1.0	%
Sinopac Holdings Co		2890 TT				NT$12.00					6,746,754				2,356,258				1.0	%
Altek Corp		3059 TT				NT$78.50					1,430,000				3,267,026				1.4	%
Tainan Enterprises		1473 TT				NT$47.80					1,546,000				2,150,722				0.9	%
Chunghwa Telecom Co., Ltd		2412 TT				NT$47.70					1,446,000				2,007,398				0.8	%
Taiwan FamilyMart		5903 TT				NT$39.80					1,478,520				1,712,605				0.7	%
New York 16.6%
Sohu.com Inc		Sohu US				US$40.00					711,586				28,271,312				11.7	%
Chinadotcom, Corp		China US				US$12.37					973,654				11,789,976				4.9	%
B shares 2.7%
China International Marine Containers Co., Ltd.		200039 CH				HK$9.97					2,442,747				3,122,632				1.3	%
Luthai Textile Co., Ltd		200726 CH				HK$4.53					3,119,794				1,812,055				0.7	%
Shanghai Friendship Group Co., Inc		900923 CH				US$0.71					2,303,437				1,644,654				0.7	%
Direct 2.5%
Captive Finance Ltd											2,000,000				3,045,000				1.2	%
Tomoike Industrial (H.K.) Ltd											825,000				2,352,068				1.0	%
A-S China Plumbing Products, Ltd		8262 HK				HK$1.26					5,850,000				1,417,560				0.6	%
Kowloon Development		34 HK				HK$3.30					1,530,000				647,370				0.3	%
Singapore 1.1%
People’s Food Holding		PFH SP					S$1.04				4,400,000				2,601,478				1.1	%
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.