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EX-99.1 3 b48116ssexv99w1.htm INSIGHT NEWSLETTER exv99w1


		INSIGHT

30 September 2003


THE CHINA FUND, INC. (CHN)

IN BRIEF


Net asset value per share*	US$24.38
Market price*	US$26.29
Premium/discount*		7.83%
Fund size*	US$245.59

* Source: State Street Corporation/Martin Currie Inc

At 31 August 2003


	China Fund			MSCI Golden
	NAV			Dragon

One month return*		2.1	%		2.8	%
One year return*		70.8	%		39.4	%

MANAGER’S COMMENTARY

The markets in China became more volatile in September. In Hong Kong, investors took profits on ‘H’ shares, which have performed well since May. They switched to Hong Kong property developers and banks, in response to improved sentiment locally. The ‘A’ share market has been one of the world’s worst performers this year — down by 15% since its high in April. And yet the growth in earnings of underlying companies has been good, with an increase in profit at the interim of 31% for the market as a whole and 25% in terms of earnings per share.

As we anticipated, the financial sector in Taiwan has started to outperform the tech sector. We believe that trend will continue in the fourth quarter of 2003. There are three reasons for our positive view. The first is the return of loan growth — specifically corporate loan growth. Also, the financial sector is under-held by foreign investors. With the change in the MSCI’s weighting looming, we expect foreign buying of the financial sector to increase sharply. Finally, Taiwan New Dollars will continue to appreciate and the investors will buy into a sector that owns the most Taiwan New Dollars assets.

The rise in the yen following the G7 meeting has strengthened our conviction about appreciation of the Renminbi and Taiwan New Dollars. The authorities are now seeking ways, short of revaluation, to increase demand for the US$ and decrease demand for Renminbi. Following cuts in VAT rebates to exporters and allowing locals to change more currency to travel abroad, further steps are expected. These include allowing Chinese exporters to keep earnings in US$ offshore and allowing Chinese qualified domestic institutional investors (QDI) to invest abroad.

September was the month for investment conferences in China. Judging by the number and mood of attendees, and the general upbeat presentations by Chinese corporations, I would be surprised not to see good fund flows into this region this autumn. We visited Inner Mongolia Yili (600887 CH), the leading producer of ice cream and milk in China, in early September. We intend to visit ‘A’ share-listed Lhasa Brewery (000752 CH) in Tibet in early October.

INVESTMENT STRATEGY

Your fund is 97.8% invested with holdings in 57 companies, of which 2 are unlisted.

Given our bullish view on the Renminbi and Taiwan New Dollars, we have become stricter about avoiding exporters and choosing only those stocks which will benefit from, or be immune from, currency appreciation. We bought shares in China Telecom, the largest fixed line operator in China, as the capex in China’s telecom sector shows signs of recovery and its parent company will inject more valuable assets shortly. We added Ocean Grand Chemicals, one of the few licensed electroplating chemical manufacturers in China. The company is benefiting from expansion of capacity and huge demand. We also added to Natural Beauty, whose business has seen a quick recovery after SARS. In Taiwan we switched Ho Tung Chemical into Softworld.

Chris Ruffle, Martin Currie Inc

DIRECT INVESTMENT MANAGER’S COMMENTARY

The PRC and greater China economies are showing strong growth and there are signs that business expansion projects which had been put on hold due to SARS are now being accelerated. The Fund’s Direct Investments are all now performing ahead of budget. There is also increasing demand for expansion funds by good companies. The recent moves by the People’s Bank of China to strengthen reserve requirements and reduce imprudent lending are increasing the bargaining power of private equity investors to gain attractive valuations and favorable deal terms and we expect to see this reflected in the level of investment activity in the China private equity market.

KOH Kuek Chiang, Asian Direct Capital Management

FUND DETAILS*


Market cap		$307.43m
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*

(ASSET ALLOCATION CHART)

SECTOR ALLOCATION*


	% of		MSCI Golden
	net assets		Dragon %

Information technology		19.8		23.0
Industrials		18.9		13.9
Consumer discretionary		14.8		7.2
Materials		9.5		5.8
Utilities		8.7		8.6
Consumer staples		7.9		0.6
Financials		6.3		29.0
Energy		3.1		4.0
Health care		2.5		0.1
Telecommunications		6.3		7.8
Cash		2.2		—
Total		100.0		100.0

PERFORMANCE* (IN US$ TERMS)


	NAV		Market price
	%		%

One month		2.1		-3.9
Calendar year to date		54.6		91.2
3 years **		24.1		41.5

DIRECT INVESTMENTS* (2.6%)


Captive Finance	Financials	1.2	%
Tomoike Industrial (H K) Ltd	Industrials	1.0	%
A-S China Plumbing Products (8262 HK)	Industrials	0.4	%

15 LARGEST LISTED INVESTMENTS* (48.7%)


Sohu Com Inc	Information technology	9.0
Fountain Set Holdings	Materials	4.1
TCL International	Consumer discretionary	3.9
Chaoda Modern Agriculture	Consumer staples	3.4
Chinadotcom Corporation	Information technology	3.3
Sinotrans Limited	Industrials	3.2
Yanzhou Coal Mining	Energy	3.1
Xinao Gas Holdings	Utilities	2.7
BYD Co	Industrials	2.6
Shenzhen Expressway	Utilities	2.6
Merry Electronics	Consumer discretionary	2.4
Anhui Conch Cement	Materials	2.3
Anhui Expressway	Utilities	2.1
Cathay Financial Holdings	Financials	2.0
TPV Technology	Industrials	2.0

FUND PERFORMANCE

One

Three

Year

One

Three**

Five**

Since#**

month

months

to date

year

years

launch

The China Fund, Inc.

2.1

14.9

54.6

70.8

24.1

21.1

7.1

MSCI Golden Dragon

2.8

23.4

35.0

39.4

-5.5

5.4

—

Hang Seng Chinese Enterprise Index

-2.9

19.0

63.0

71.6

18.0

14.9

—

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

PERFORMANCE IN PERSPECTIVE

(PERFORMANCE IN PERSPECTIVE GRAPHIC)

THE CHINA FUND INC. PREMIUM/DISCOUNT

(THE CHINA FUND INC. PREMIUM DISCOUNT LINE GRAPH)

DIVIDEND HISTORY CHART*

(DIVIDEND HISTORY CHART)

All charts as of 30 September 2003. *Source: State Street Corporation


THE PORTFOLIO — IN FULL		AT 30 SEPTEMBER 2003


Sector	Company (BBG ticker)	Price		Holding		Value $		% of portfolio
Hong Kong 48.7%
Fountain Set (Holdings) Ltd	420 HK	HK$6.10			12,750,000		9,960,423		4.1	%
TCL International Holdings Ltd	1070 HK	HK$2.28			32,318,000		9,702,411		3.9	%
Chaoda Modern Agriculture (Holdings) Ltd	682 HK	HK$1.59			41,038,000		8,425,497		3.4	%
Sinotrans Limited-H	598 HK	HK$3.00			20,065,000		7,772,713		3.2	%
Yanzhou Coal Mining Co.	1171 HK	HK$4.35			13,786,000		7,743,544		3.1	%
Xinao Gas Holdings Ltd	2688 HK	HK$3.65			13,976,000		6,587,005		2.7	%
BYD Co	1211 HK	HK$19.2			2,525,000		6,423,028		2.6	%
Shenzhen Expressway Co., Ltd	548 HK	HK$2.30			21,494,000		6,383,477		2.6	%
Anhui Conch Cement	914 HK	HK$5.75			7,726,000		5,736,338		2.3	%
Anhui Expressway Co., Ltd	995 HK	HK$2.28			17,778,000		5,222,477		2.1	%
TPV Technology, Ltd	903 HK	HK$3.90			9,968,000		5,019,782		2.0	%
Comba Telecom Systems Consulting Holdings	2342HK	HK$3.35			11,174,000		4,833,544		2.0	%
Brilliance China Automotive Holdings, Ltd	1114 HK	HK$2.60			12,882,000		4,324,828		1.8	%
Tack Fat Group International Ltd	928 HK	HK$0.89			37,296,000		4,286,122		1.7	%
Proview Intl Holdings Ltd	334 HK	HK$1.80			17,644,000		4,100,924		1.7	%
Golden Meditech Co Ltd	8180 HK	HK$1.88			13,950,000		3,386,447		1.4	%
Wah Sang Gas	8035 HK	HK$0.86			27,778,000		3,120,559		1.3	%
Wanyou Fire Safety	8201 HK	HK$0.42			53,565,000		2,939,560		1.2	%
Jingwei Textile Machinery Co., Ltd	350 HK	HK$2.90			7,436,000		2,784,516		1.1	%
China Telecom Corporation Ltd.	728 HK	HK$2.00			10,000,000		2,614,793		1.1	%
Natural Beauty Bio-Technology Ltd	157 HK	HK$0.58			32,780,000		2,454,987		1.0	%
Beijing Capital International Airport
Co., Ltd	694 HK	HK$2.28			7,520,000		2,209,080		0.9	%
Sino Golf Holdings Ltd	361 HK	HK$1.47			10,953,000		2,064,896		0.8	%
Mainland Headwear Holdings	1100 HK	HK$2.68			1,626,000		561,638		0.2	%
Ocean Grand Chemicals Holdings Ltd.	2882 HK	HK$1.09			3,129,000		440,397		0.2	%
Arcontech, Corp	8097 HK	HK$0.17			18,386,000		410,720		0.2	%
Essex Bio-Technology Ltd	8151 HK	HK$0.12			19,278,166		286,270		0.1	%
Taiwan 30.8%
Merry Electronics	2439 TT	NT$60.0			3,254,208		5,788,689		2.4	%
Cathay Financial Holding Co., Ltd	2882 TT	NT$44.0			3,862,000		5,037,889		2.0	%
China Metal Products	1532 TT	NT$30.2			5,473,408		4,900,591		2.0	%
Taiwan Green Point Enterprises Co., Ltd	3007 TT	NT$88.5			1,831,200		4,804,660		2.0	%
Chicony Electronics Co., Ltd	2385 TT	NT$61.5			2,500,960		4,560,007		1.9	%
Chunghwa Telecom Co., Ltd	2412 TT	NT$47.9			3,055,000		4,338,408		1.8	%
Vanguard International Semiconductor Corp.	5347 TT	NT$10.2			14,000,000		4,233,620		1.7	%
Synnex Technologies International, Corp	2347 TT	NT$48.0			2,950,640		4,198,954		1.7	%
Wintek Corp.	2384 TT	NT$26.2			5,040,000		3,914,853		1.6	%
Fubon Financial Holdings	2881 TT	NT$33.0			3,953,952		3,868,379		1.6	%
Ability Enterprise Corp	2374 TT	NT$33.8			3,714,840		3,722,549		1.5	%
Polaris Securities Co., Ltd	6011 TT	NT$14.8			8,359,376		3,655,524		1.5	%
Data Systems Consulting Co	2477 TT	NT$27.6			3,968,339		3,247,144		1.3	%
Cheng Shin Rubber	2105 TT	NT$43.3			2,516,400		3,230,362		1.3	%
Taiwan Hon Chuan Enterprise	9939 TT	NT$40.3			2,345,520		2,802,385		1.1	%
Altek Corp	3059 TT	NT$65.0			1,430,000		2,755,707		1.1	%
China Motor Co	2204 TT	NT$56.5			1,640,000		2,747,110		1.1	%
Ho Tung Chemical, Corp	1714 TT	NT$14.4			5,386,000		2,291,405		0.9	%
Tainan Enterprises	1473 TT	NT$46.2			1,546,000		2,117,557		0.9	%
Taiwan FamilyMart	5903 TT	NT$41.9			1,478,520		1,836,644		0.7	%
Soft-World International Corp.	5478 TT	NT$129			450,000		1,721,020		0.7	%
B shares 2.4%
China International Marine Containers Co., Ltd.	200039 CH	HK$10.5			2,442,747		3,308,767		1.4	%
Shanghai Friendship Group Co., Inc	900923 CH	US$0.64			2,303,437		1,607,799		0.7	%
Luthai Textile Co., Ltd	200726 CH	HK$4.87			1,237,886		778,434		0.3	%
New York 12.3%
Sohu.com Inc	Sohu US	US$33.2			711,586		22,130,324		9.0	%
Chinadotcom, Corp	China US	US$8.50			973,654		8,071,592		3.3	%
Singapore 1.0%
People’s Food Holding	PFH SP		S$0.93		4,400,000		2,366,344		1.0	%
Direct 2.6%
Captive Finance Ltd					2,000,000		3,045,000		1.2	%
Tomoike Industrial (H.K.) Ltd					825,000		2,368,726		1.0	%
A-S China Plumbing Products, Ltd	8262 HK	HK$1.45			5,850,000		945,091		0.4	%
Cash 2.2%

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.