exv99

THE CHINA FUND, INC. (CHN)

IN BRIEF


Net asset value per share	US$	16.38
Market price	US$	14.65
Premium/(discount)		(10.62	%)
Fund size	US$	373.2m


Source: State Street Bank and Trust Company



At 31 January 2009		US$ returns


	China Fund NAV			MSCI Golden Dragon*
	%			%

One month		(5.8	)		(6.7	)
Year to date		(5.8	)		(6.7	)
One year		(41.2	)		(43.9	)
Three years %pa		9.8			(5.1	)

Past performance is not a guide to future returns.

Source: State Street Bank and Trust Company. NAV performance.


*		Source for index data: MSCI.

MANAGER’S COMMENTARY

Amid dire economic statistics, corporate profit warnings and frenzied government activity to support rapidly slowing growth, Chinese markets stumbled into their New Year holidays with a sigh of relief. The Fund managed to outperform the MSCI Golden Dragon Index by 0.9%.

Perhaps the most shocking among the statistics was December’s 41.9% fall in Taiwanese exports, which included a 54% fall in exports to China/Hong Kong — for long the fastest-growing segment. Also notable was the fourth-quarter increase in foreign-exchange reserves from US$1.9 trillion to ‘only’ US$1.95 trillion. Given a US$100.5 billion trade surplus (not to mention US$25 billion or so in earned interest), the significance of this is the swing to net capital outflow from China. Growing unemployment in China received a lot of press in January and is clearly a key concern of the government. The impact of the collapse in foreign demand has been concentrated in those areas with large export industries, such as Guangdong and Zhejiang, but the knock-on effect is already being felt in some of the poorest regions, which supplied the export factories with migrant labour.

To list the government counter-initiatives, issuing daily from politicians in Beijing, Taipei and Hong Kong, not to mention various provincial capitals, would fill the page. Rate cuts continued (Taiwan cut its benchmark rate by 50 basis points to 1.5%) but policies are becoming increasingly industry-specific; the tax on buying cars was cut on both sides of the straits. The Chinese government gave large cash injections to China’s faltering airlines (these were already state-owned, of course, so they just became more so). The effectiveness with which the government can lean on the state-owned banks to increase lending was indicated by the jump in M2 growth in December from 14.8% to 17.8% (good for the economy, perhaps, but slightly worrying if you are a bank shareholder).

The company meetings we held in January were not wholly negative. Companies with some control over product pricing (some consumer brands) are enjoying a sharp fall in costs. Difficult times are promoting rationalisation. Good progress has been made in running down inventories, even to the extent of some suppliers receiving rush orders. Companies did not seem to be under particular pressure from banks on the mainland or Taiwan regarding credit lines, although the same could not be said in Hong Kong. In terms of negative surprises, losses from hedging and foreign-exchange exposure were the most common.

Until ugly 2008 results are safely out of the way, it seems too early to become too positive. With economists now competing with each other in pessimism, most economic risks should already be priced into the market. As the year wears on, the prospect for earnings will become clearer, and investors will get bored holding cash deposits offering almost zero interest. But political risks remain. Under stress, dictatorships tend to turn to nationalism and developed countries to protectionism and isolation.

INVESTMENT STRATEGY

Your Fund is 98.5% invested with holdings in 69 companies. Our exposure to the A-share market is now 14.4%, to Taiwan 19.6% and to unlisted equities 17.5%.

In January we continued to raise cash to pay the dividend, the cash element of which was US$31.6 million. Stocks sold included China Development Financial and Fubon Financial Holding in Taiwan, and China Travel, which issued a profit warning for FY2008. We took some more profits on outperfomers, including ZTE (telecom equipment), Mindray (medical devices), Xinao Gas (gas distribution) and Huabao (tobacco flavours).

On the buy side, we continue to sift through the wreckage for industries or stocks that we think will still manage to grow in 2009. In January, we added to Financial One, a financial services provider for small and medium-sized businesses. We also started investing into Sina. Sina was punished for its acquisition of Focus Media’s out-of-home advertising network, but should become a dominant force in the high-end media market.

Chris Ruffle, Martin Currie Inc*


*		Martin Currie Ltd and Heartland Capital Management Ltd (HCML) have established MC China Ltd (MCCL), as a joint venture company, to provide investment management or investment advisory services to the range of China investment products managed by Martin Currie.

MCCL has appointed Martin Currie Investment Management Ltd (MCIM), or its affiliates, as investment manager of Martin Currie’s China investment products. HCML has seconded both Chris Ruffle and Shifeng Ke to MCIM, or its affiliates, on a full time basis with the same roles and responsibilities as if they were full time employees.

31 JANUARY 2009

FUND DETAILS



Market cap			US$333.76m
Shares outstanding			22,781,762
Exchange listed		NYSE
Listing date		July 10, 1992
Listed and direct investment manager	Martin Currie Inc


Source: State Street Bank and Trust Company.

SECTOR ALLOCATION


	The China			MSCI Golden
	Fund, Inc			Dragon

Consumer discretionary		25.6	%		4.2	%
Consumer staples		22.6	%		2.5	%
Industrials		12.2	%		8.4	%
Healthcare		11.1	%		—
Financials		7.8	%		33.9	%
Information technology		7.0	%		16.5	%
Materials		5.5	%		6.2	%
Energy		4.7	%		8.8	%
Utilities		1.4	%		6.1	%
Telecommunications		0.9	%		13.2	%
Other assets & liabilities		1.2	%		—


Source: State Street Bank and Trust Company. Source for index data: MSCI

ASSET ALLOCATION

Source: State Street Bank and Trust Company



PERFORMANCE		(US$ RETURNS)


	NAV			Market price
	%			%
One month		(5.8	)		(11.4	)
Year to date		(5.8	)		(11.4	)
Three years %pa		9.8			1.3

Past performance is not a guide to future returns.

Three year returns are annualised.


Source: State Street Bank and Trust Company

15 LARGEST HOLDINGS (46.1%)


Queenbury Investment (Huiyan)	Consumer discretionary	10.3	%
China Huiyuan Juice	Consumer staples	4.9	%
Shandong Weigao Group	Healthcare	4.1	%
Chaoda Modern Agriculture	Consumer staples	3.7	%
Wumart Stores	Consumer staples	2.8	%
Daqin Railway	Industrials	2.8	%
Yuanta Financial	Financials	2.6	%
Far Eastern Department Stores	Consumer discretionary	2.2	%
Shenzhen Agricultural Products	Consumer staples	2.1	%
Qingdao Bright Moon	Industrials	1.9	%
Uni-President Enterprises	Consumer staples	1.8	%
Synnex Technology International	Information technology	1.8	%
China Silicon	Information technology	1.7	%
China Medical	Healthcare	1.7	%
China Shineway Pharmaceutical	Healthcare	1.7	%

DIRECT INVESTMENTS (17.5%)


Queenbury Investment (Huiyan)	Consumer discretionary	10.3	%
Qingdao Bright Moon	Industrials	1.9	%
China Silicon (Series A Preferred)	Information technology	1.7	%
Highlight Tech	Industrials	1.6	%
Wuxi Paiho	Industrials	1.0	%
HAND Enterprise Solutions	Information technology	0.8	%
China Silicon	Information technology	0.2	%
TECO Optronics	Information technology	0.0	%
Source: State Street Bank and Trust Company.



FUND PERFORMANCE (BASED ON NET ASSET VALUE)		(US$ RETURNS)


	One			Three			Calendar			One			Three			Five		Since
	month			months			year to date			year			years			years		launch
	%			%			%			%			% pa			% pa		% pa

The China Fund, Inc.		(5.8	)		3.0			(5.8	)		(41.2	)		9.8			9.1		8.9
MSCI Golden Dragon		(6.7	)		(1.7	)		(6.7	)		(43.9	)		(5.1	)		1.4		3.8
Hang Seng China Enterprise		(9.7	)		7.8			(9.7	)		(42.6	)		4.4			9.2		16.1
Shanghai Stock Exchange 180		12.1			21.6			12.1			(53.3	)		31.6			12.8		n/a

Past performance is not a guide to future returns.

Source: State Street Bank and Trust Company. Launch date 10 July 1992. Three year, five year and since launch returns are all annualised.

Source for index data: MSCI for the MSCI Golden Dragon and Copyright 2009 Bloomberg LP for the Hang Seng China Enterprise and the Shanghai Stock Exchange 180. For a full description of each index please see the index descriptions section.

PERFORMANCE IN PERSPECTIVE

Past performance is not a guide to future returns.
Source: Martin Currie Inc as at 31 January 2009.

THE CHINA FUND INC. PREMIUM/DISCOUNT

Past performance is not a guide to future returns.
Source: Martin Currie Inc as at 31 January 2009.

10 YEAR DIVIDEND HISTORY CHART


Total	0.11	0.00	0.13	0.21	1.78	3.58	2.51	4.01	12.12	5.82
Income	0.11	0.00	0.13	0.06	0.07	0.20	0.22	0.30	0.28	0.48
Long-term capital	0.00	0.00	0.00	0.00	0.67	3.27	2.29	2.73	9.00	5.34
Short-term capital	0.00	0.00	0.00	0.15	1.04	0.11	0.00	0.98	2.84	0.00

Past performance is not a guide to future returns.
Source: State Street Bank and Trust Company.

31 JANUARY 2009


Sector	Company (BBG ticker)	Price	Holding	Value US$	% of portfolio

Hong Kong						26.5	%
China Huiyuan Juice	1886HK	HK$10.2	14,059,500	18,420,617		4.9	%
Chaoda Modern Agriculture	682 HK	HK$5.0	21,459,357	13,725,842		3.7	%
China Shineway Pharmaceutical	2877 HK	HK$4.4	11,184,000	6,317,014		1.7	%
Shangri-La Asia	0069 HK	HK$9.2	4,755,555	5,611,292		1.5	%
Xinao Gas	2688 HK	HK$7.0	5,680,000	5,127,279		1.4	%
Anta Sports	2020 HK	HK$3.6	11,072,000	5,125,794		1.4	%
Natural Beauty Bio-Technology	157 HK	HK$1.1	32,780,000	4,818,972		1.3	%
Sinofert	297HK	HK$4.5	7,216,000	4,150,228		1.1	%
Ports Design	589 HK	HK$7.9	3,933,500	4,012,326		1.1	%
FU JI Food & Catering Services	1175HK	HK$3.6	8,689,000	4,011,377		1.1	%
Huabao International	336 HK	HK$5.0	5,500,000	3,546,282		1.0	%
Intime Department Store Group	1833 HK	HK$2.2	12,568,629	3,484,713		0.9	%
Sina Corp	SINA US	US$20.5	162,700	3,328,842		0.9	%
Golden Meditech	8180 HK	HK$0.7	35,040,000	3,208,212		0.8	%
TPV Technology	903 HK	HK$1.8	12,728,000	2,888,773		0.8	%
Honghua Group	196 HK	HK$0.9	21,902,000	2,626,681		0.7	%
Fushan International Energy	639 HK	HK$1.8	10,740,000	2,465,272		0.7	%
Yorkey Optical International	2788 HK	HK$0.9	16,424,000	1,821,453		0.5	%
SPG Land	1688 HK	HK$0.9	11,037,000	1,266,723		0.3	%
Chinasoft International	8216 HK	HK$0.5	19,230,000	1,140,717		0.3	%
China Travel International	0308 HK	HK$1.2	6,024,000	932,195		0.2	%
China Rare Earth	769 HK	HK$0.7	9,144,000	837,212		0.2	%

Singapore						4.7	%
Hsu Fu Chi International	HFCI SP	SG$1.0	9,484,000	4,943,670		1.3	%
China Fishery Group	CFG SP	SG$0.6	12,050,000	4,506,537		1.2	%
China Milk Products Group	CMILK SP	SG$0.4	11,607,000	2,919,517		0.8	%
Financial One Corp	FIN SP	SG$0.3	12,030,000	2,229,621		0.6	%
CDW	CDW SP	SG$0.1	59,708,000	1,679,689		0.4	%
China Energy	CEGY SP	SG$0.2	12,199,000	1,332,341		0.4	%

Hong Kong ‘H’ shares						10.8	%
Shandong Weigao Group	8199 HK	HK$13.3	9,004,000	15,442,860		4.1	%
Wumart Stores	995 HK	HK$5.5	15,126,000	10,689,201		2.9	%
Zijin Mining	2899 HK	HK$4.2	10,408,000	5,596,853		1.5	%
China Oilfield Services	2883 HK	HK$6.2	6,388,000	5,132,082		1.4	%
ZTE Corp	763 HK	HK$22.5	1,124,559	3,255,661		0.9	%
Sichuan Expressway	107 HK	HK$1.3	742,000	124,391		0.0	%

Taiwan						19.7	%
Yuanta Financial	2885 TT	NT$12.2	26,635,545	9,674,839		2.6	%
Far Eastern Department Stores	2903 TT	NT$15.1	18,511,584	8,322,290		2.2	%
Uni-President Enterprises	1216 TT	NT$26.1	8,728,581	6,769,767		1.8	%
Synnex Technology	2347 TT	NT$37.5	5,937,855	6,620,697		1.8	%
Ruentex Development	9945 TT	NT$16.7	12,694,000	6,311,568		1.7	%
Taiwan Secom	9917 TT	NT$42.2	4,738,000	5,945,864		1.6	%
Cathay Financial	2882 TT	NT$32.2	5,993,788	5,737,262		1.5	%
FamilyMart	5903 TT	NT$48.2	3,777,652	5,477,385		1.5	%
Lien Hwa Industrial	1229 TT	NT$11.3	15,919,692	5,355,936		1.4	%
China Metal Products	1532 TT	NT$15.7	9,019,881	4,202,788		1.1	%
Cyberlink	5203 TT	NT$111.0	1,183,000	3,909,579		1.1	%
Merry Electronics	2439 TT	NT$23.3	3,584,340	2,486,494		0.7	%
Wah Lee Industrial	3010 TT	NT$19.9	4,118,821	2,434,197		0.7	%

United Kingdom						1.7	%
China Medical System Holdings	CMSH LN	£1.2	3,623,188	6,398,624		1.7	%

United States						3.5	%
The9	CMED US	US$15.1	356,200	5,385,744		1.4	%
Mindray Medical International	MR US	US$20.7	191,700	3,960,522		1.1	%
Far East Energy	FEEC US	US$0.2	10,478,634	2,011,898		0.5	%
WuXi PharmaTech Cayman	WX US	US$5.4	310,190	1,681,230		0.5	%

Equity linked securities (‘A’ shares)						14.4	%
Daqin Railway		US$1.2	8,307,000	10,289,598		2.8	%
Shenzhen Agricultural		US$2.0	4,000,000	8,002,340		2.1	%
Shanghai Zhenhua Port Machinery		US$1.3	4,462,752	5,867,234		1.6	%
Dalian Zhangzidao Fishery		US$2.4	2,270,000	5,470,700		1.5	%
Qinghai Salt Lake Potash		US$5.8	887,909	5,113,463		1.4	%
China Yangtze Power		US$1.1	4,169,077	4,651,952		1.2	%
Zhejiang Guyuelongshan		US$1.2	3,582,000	4,237,843		1.1	%
Suning Appliance		US$2.3	1,599,909	3,676,591		0.9	%
Shanghai International Airport		US$1.8	1,816,700	3,359,078		0.9	%
Wuliangye Yibin		US$2.1	1,546,007	3,194,050		0.9	%


Sector	Company (BBG ticker)	Price	Holding	Value US$	% of portfolio

Direct						17.5	%
Queenbury Investment (Huiyan)		US$85466.7	450	38,459,700		10.3	%
Qingdao Bright Moon		US$0.2	31,827,172	7,001,978		1.9	%
China Silicon (Series A Preferred)		US$238.0	27,418	6,525,484		1.7	%
Highlight Tech		US$1.8	3,366,893	5,993,070		1.6	%
Wuxi Paiho		US$0.3	11,734,701	3,679,990		1.0	%
HAND Enterprise Solutions		US$6.1	500,000	3,050,000		0.8	%
China Silicon		US$2.4	238,232	566,992		0.2	%
teco Optronics		—	1,861,710	—	—

Other assets & liabilities				4,628,274		1.2	%

INDEX DESCRIPTIONS

MSCI Golden Dragon Index

The MSCI Golden Dragon is a free float-adjusted market capitalisation index that is designed to measure equity market performance in the China region. As of May 2005 the MSCI Golden Dragon Index consisted of the following country indices: China, Hong Kong and Taiwan.

Hang Seng China Enterprise Index

The Hang Seng China Enterprise Index is a capitalisation-weighted index comprised of state-owned Chinese companies (H-shares) listed on the Hong Kong Stock Exchange and included in Hans Seng Mainland China index.

Shanghai Stock Exchange 180 Index

The Shanghai Stock Exchange 180 ‘A’ Share Index is a capitalisation-weighted index. The index tracks the daily price performance of the 180 most representative ‘A’ share stocks listed on the Shanghai Stock Exchange.

OBJECTIVE

The investment objective of the Fund is to achieve long term capital appreciation. The Fund seeks to achieve its objective through investment in the equity securities of 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 30 June 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; or (iii) companies organised 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 Fund is subject to the Investment Company Act of 1940 which limits the means in which it can access the ‘A’ share market. The Fund will continue to seek the most efficient way in which to increase its ‘A’ share exposure ensuring ongoing compliance with its legal and regulatory obligations.

CONTACTS

The China Fund, Inc.
c/o State Street Bank and Trust Company
2 Avenue de Lafayette
PO Box 5049
Boston, MA 02206-5049
Tel: (1) 888 CHN-CALL (2462255)
www.chinafundinc.com

Important information: This document is issued and approved by Martin Currie Inc (MC Inc), as investment adviser of The China Fund Inc (the Fund). MC Inc is authorised and regulated by the Financial Services Authority (FSA) and incorporated under limited liability in New York, USA. Registered in Scotland (No BR2575), registered address Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2ES. Information herein is believed to be reliable but has not been verified by MC Inc. MC 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.

Martin Currie Ltd and Heartland Capital Management Ltd (HCML) have established MC China Ltd (MCCL), as a joint venture company, to provide investment management or investment advisory services to our China product. MCCL has appointed Martin Currie Investment Management Ltd (MCIM), or its affiliates, as investment manager of our China funds. HMCL has seconded both Chris Ruffle and Shifeng Ke to MCIM or its affiliates on a full time basis with the same roles and responsibilities as if they were full time employees.

The Fund is classified as a ‘non-diversified’ investment company under the US Investment Company Act of 1940 as amended. It meets the criteria of a closed ended US mutual fund and its shares are listed on the New York Stock Exchange. MC Inc has been appointed investment adviser to the Fund.

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 FSA 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.

This newsletter does not constitute an offer of shares. MC 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.

The information provided in this report should not be considered a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased.

It should not be assumed that any of the securities transactions or holdings discussed here were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.

Investing in the Fund involves certain considerations in addition to the risks normally associated with making investments in securities. The value of the shares issued by the Fund, and the income from them, may go down as well as up and there can be no assurance that upon sale, or otherwise, investors will receive back the amount originally invested. There can be no assurance that you will receive comparable performance returns, or that investments will reflect the performance of the stock examples contained in this document. Movements in foreign exchange rates may have a separate effect, unfavorable as well as favorable, on the gain or loss otherwise experienced on an investment. Past performance is not a guide to future returns. Accordingly, the Fund is only suitable for investment by investors who are able and willing to withstand the total loss of their investment. In particular, prospective investors should consider the following risks:

•		The companies quoted on Greater Chinese stock exchanges are exposed to the risks of political, social and religious instability, expropriation of assets or nationalisation, rapid rates of inflation, high interest rates, currency depreciation and fluctuations and changes in taxation, which may affect income and the value of investments.

•		At present, the securities market and the regulatory framework for the securities industry in China is at an early stage of development. The China Securities Regulatory Commission (CSRC) is responsible for supervising the national securities markets and producing relevant regulations. The Investment Regulations, under which the Fund invests in the People’s Republic of China (PRC) and which regulate repatriation and currency conversion, are new. The Investment Regulations give CSRC and State Administration of Foreign Exchange (SAFE) wide discretions and there is no precedent or certainty as to how these discretions might be exercised, either now or in the future. The Fund may, from time to time, obtain access to the securities markets in China via Access Products. Such products carry additional risk and may be less liquid than the underlying securities which they represent.

•		During the past 15 years, the PRC government has been reforming the economic and political systems of the PRC, and these reforms are expected to continue, as evidenced by the recently announced changes. The Fund’s operations and financial results could be adversely affected by adjustments in the PRC’s state plans, political, economic and social conditions, changes in the policies of the PRC government such as changes in laws and regulations (or the interpretation thereof), measures which may be introduced to control inflation, changes in the rate or method of taxation, imposition of additional restrictions on currency conversion and the imposition of additional import restrictions.

•		PRC’s disclosure and regulatory standards are in many respects less stringent than standards in certain Organisation for Economic Co-operation and Development (OECD) countries, and there may be less publicly available or less reliable information about PRC companies than is regularly published by or about companies from OECD countries.

•		The Shanghai Stock Exchange and Shenzhen Stock Exchange have lower trading volumes than most OECD exchanges and the market capitalisations of listed companies are small compared to those on more developed exchanges in developed markets. The listed equity securities of many companies in the PRC are accordingly materially less liquid, subject to greater dealing spreads and experience materially greater volatility than those of OECD countries. These factors could negatively affect the Fund’s NAV.

•		The Fund invests primarily in securities denominated in other currencies but its NAV will be quoted in US dollars. Accordingly, a change in the value of such securities against US dollars will result in a corresponding change in the US dollar NAV.

•		The marketability of quoted shares may be limited due to foreign investment restrictions, wide dealing spreads, exchange controls, foreign ownership restrictions, the restricted opening of stock exchanges and a narrow range of investors. Trading volume may be lower than on more developed stockmarkets, and equities are less liquid. Volatility of prices can also be greater than in more developed stockmarkets. The infrastructure for clearing, settlement and registration on the primary and secondary markets may be underdeveloped. Under certain circumstances, there may be delays in settling transactions in some of the markets.

•		The value of the Fund’s investment in any Quota will be affected by taxation levied against the relevant Qualified Foreign Institutional Investors (QFIIs) or in respect of investments held in the relevant Quotas. The PRC taxation regime that will apply to QFIIs and investments made in or through QFII quotas is not clear. The Investment Regulations are new and do not currently expressly contemplate the treatment of QFIIs and investment made through QFII Quotas.

Martin Currie Inc, registered in Scotland (no BR2575)

Registered office: Saltire Court, 20 Castle Terrace, Edinburgh EH11 2ES Tel: 44 (0) 131 229 5252 Fax: 44 (0) 131 228 5959 www.martincurrie.com/china North American office: 1350 Avenue of the Americas, Suite 3010, New York, NY 10019, USA Tel: (1) 212 258 1900 Fax: (1) 212 258 1919

Authorised and registered by the Financial Services Authority and incorporated with limited liability in New York, USA.
Please note: calls to the above numbers may be recorded.