exv99

THE CHINA FUND, INC. (CHN)

The Martin Currie
Shanghai team

IN BRIEF


Net asset value per share	US$	23.85
Market price	US$	22.01
Premium/(discount)		(7.71	%)
Fund size	US$	543.3	m

Source: State Street Bank and Trust Company


At 31 August 2009				US$ returns
	China Fund NAV			MSCI Golden Dragon*
	%			%

One month		(4.0	)		(5.8	)
Year to date		37.0			43.8
One year		0.7			(3.3	)
Three years %pa		18.5			7.6

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

August’s main feature was a sharp fall in the A-share market, which slumped by 25% during the month. The catalyst was the return of bank lending to normal levels after a government-induced credit splurge; as the president of China Construction Bank said, when announcing that lending would be down 70% in the second half, ‘We noticed that some loans didn’t go into the real economy’. Well, fancy that! While the politicians insist that they will maintain an appropriately loose monetary policy, the bank regulator has used more subtle measures, such as a reclassification of subordinated debt, to indicate its disquiet with the pace of lending growth. The approval of several large IPOs also dented investors’ optimism, especially once Everbright Securities, having attracted US$200 billion in subscription deposits, managed to rise by ‘only’ 30% on its debut.

Interim results did not really weigh on the market, generally beating low expectations due to cost-cutting. Also, implied in the interim results was a sharp improvement of the second quarter over the first. In the real economy, retail sales growth remained steady at 15.2% year on year, with rural consumption holding up better than urban. Power output (one of the macro figures less prone to massaging) turned positive in July, with a year-on-year increase of 4.2%. The key will be whether the return of private investment can take up the running once the effects of the public spending stimulus start to fade. The return of property developers to land auctions is a positive sign, as are indications of a tighter labour market in coastal cities, with the re-opening of some export-oriented factories.

In the face of the collapse in the domestic stockmarket, the other Chinese markets held up remarkably well, with the Hang Seng falling by 7% and Taiwan by 3.6%. The latter market would have done even better were it not for severe floods in the south of the island, the slow response to which damaged confidence in the ruling party. The key support in Taiwan is the return of expatriate capital, as revealed by the second-quarter balance of payments figures. In July, Taiwan’s M1B grew by 20% year on year, a five-year high. Exports numbers remain poor on a year-on-year basis (-24.4% in July) but are improving sequentially. The real benefits of improved cross-strait ties were plain to see in Kaohsiung harbour’s first-half throughput, which equalled the total for 2008.

INVESTMENT STRATEGY

The Fund is 92.2% invested with holdings in 61 companies. The focus of the portfolio is in entrepreneurial companies operating in industries which we expect to be able to grow in a difficult economic environment. We are generally avoiding investments in Chinese property, banks, commodities and transport. The Fund’s relatively low beta reflects this cautious stance.

Turnover in the portfolio remains low (42% on an annualised basis for the year to date). In August we added to the Taiwan weighting (now 19.8%) through the addition of HTC, a smartphone designer, KGI Securities, Fubon Financial Holding Company and convenience-store operator Familymart Taiwan. We sold Merry Electronics and reduced our overall A-share weighting to 11.8%. As a hedge against a short-term correction, we bought some Ultrashort Xinhua 25 Fund (FXP US).

Of the total portfolio, 16.7% is invested in unlisted companies. We have raised some cash ahead of direct investments in the agricultural equipment and beverage industries, which we expect to conclude shortly.

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 AUGUST 2009

FUND DETAILS


Market cap		US$501.4m
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.

ASSET ALLOCATION

Source: State Street Bank and Trust Company.

SECTOR ALLOCATION


	The China			MSCI Golden
	Fund, Inc			Dragon

Consumer discretionary		20.3	%		4.6	%
Consumer staples		16.8	%		2.2	%
Healthcare		15.3	%		0.1	%
Industrials		10.6	%		7.9	%
Financials		9.8	%		36.1	%
Information technology		8.1	%		20.8	%
Energy		4.6	%		8.8	%
Materials		2.9	%		6.4	%
Utilities		1.5	%		4.1	%
Telecommunications		1.3	%		9.0	%
Index fund		1.0	%		—
Other assets & liabilities		7.8	%		—

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



PERFORMANCE		(US$ RETURNS)


	NAV			Market price
	%			%

One month		(4.0	)		(3.9	)
Year to date		37.0			33.1
Three years %pa		18.5			16.7

Past performance is not a guide to future returns.

Three year returns are annualized.

Source: State Street Bank and Trust Company

15 LARGEST HOLDINGS (42.9%)


Queenbury Investment (Huiyan)	Consumer discretionary	7.5	%
Wumart Stores	Consumer staples	4.3	%
Ugent Holdings	Industrials	4.2	%
Shandong Weigao Group	Healthcare	3.9	%
Far Eastern Department Stores	Consumer discretionary	3.1	%
China Medical System	Healthcare	2.6	%
China Fishery Group	Consumer staples	2.2	%
Fushan International Energy	Energy	2.0	%
Shenzhen Agricultural Products	Consumer staples	1.9	%
China Shineway Pharmaceutical	Healthcare	1.9	%
Ports Design	Consumer discretionary	1.9	%
WuXi PharmaTech Cayman	Healthcare	1.9	%
Ruentex Development	Financials	1.9	%
Hsu Fu Chi International	Consumer staples	1.8	%
China Metal Products	Materials	1.8	%

DIRECT INVESTMENTS (16.7%)


Queenbury Investment (Huiyan)	Consumer discretionary		7.5	%
Ugent Holdings	Industrials		4.2	%
Qingdao Bright Moon	Industrials		1.5	%
HAND Enterprise Solutions	Information technology		1.5	%
Highlight Tech	Industrials		1.3	%
China Silicon (Series A Preferred)	Information technology		0.7	%
China Silicon (Common Stock)	Information technology	—
China Silicon (Warrants)	Information technology	—
TECO Optronics	Information technology	—

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.		(4.0	)		7.7		37.0		0.7			18.5		19.6		11.0
MSCI Golden Dragon		(5.8	)		4.6		43.8		(3.3	)		7.6		11.9		9.2
Hang Seng China Enterprise		(7.0	)		8.2		42.9		(2.6	)		18.0		21.5		21.5
Shanghai Stock Exchange 180		(25.3	)		1.6		53.4		14.1			33.4		24.9		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 annualized.

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 August 2009.

THE CHINA FUND INC. PREMIUM/DISCOUNT

Past performance is not a guide to future returns.

Source: Martin Currie Inc as at 31 August 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 AUGUST 2009


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

Hong Kong									16.6	%
Fushan International Energy	639 HK	HK$	5.3		16,044,000		10,929,846		2.0	%
China Shineway Pharmaceutical	2877 HK	HK$	7.3		11,184,000		10,476,139		1.9	%
Ports Design	589 HK	HK$	17.7		4,549,500		10,413,213		1.9	%
Chaoda Modern Agriculture	682 HK	HK$	4.6		15,327,357		9,136,434		1.7	%
Intime Department Store Group	1833 HK	HK$	5.2		12,568,629		8,432,546		1.5	%
Xinao Gas	2688 HK	HK$	12.4		5,084,000		8,107,585		1.5	%
Natural Beauty Bio-Technology	157 HK	HK$	1.3		48,680,000		8,039,481		1.5	%
Shangri-La Asia	0069 HK	HK$	11.4		4,755,555		6,994,772		1.3	%
Golden Meditech	8180 HK	HK$	1.3		35,040,000		5,877,260		1.1	%
FU JI Food & Catering Services	1175 HK	HK$	7.6		5,462,000		5,243,148		1.0	%
TPV Technology	903 HK	HK$	4.2		8,854,000		4,809,380		0.9	%
Yorkey Optical International	2788 HK	HK$	1.8		8,598,926		1,974,839		0.3	%

Singapore									5.4	%
China Fishery Group	CFG SP	SG$	1.3		13,255,000		11,953,038		2.2	%
Hsu Fu Chi International	HFCI SP	SG$	1.5		9,484,000		9,868,202		1.8	%
CDW	CDW SP	SG$	0.1		57,503,000		3,191,066		0.6	%
Financial One Corp	FIN SP	SG$	0.3		12,030,000		2,503,468		0.5	%
China Milk Products Group	CMILK SP	SG$	0.6		4,923,000		1,895,301		0.3	%

Hong Kong ‘H’ shares									11.9	%
Wumart Stores	995 HK	HK$	12.1		14,888,000		23,281,259		4.3	%
Shandong Weigao Group	8199 HK	HK$	21.0		7,808,000		21,155,660		3.9	%
China Pharmaceutical Group	1093 HK	HK$	4.2		12,918,000		7,050,227		1.3	%
ZTE Corp	763 HK	HK$	36.1		1,461,926		6,818,694		1.3	%
Zijin Mining	2899 HK	HK$	6.5		7,214,000		6,059,330		1.1	%

Taiwan									19.8	%
Far Eastern Department Stores	2903 TT	NT$	28.7		19,066,931		16,624,517		3.1	%
Ruentex Development	9945 TT	NT$	26.7		12,694,000		10,296,654		1.9	%
China Metal Products	1532 TT	NT$	35.1		9,019,881		9,618,210		1.8	%
Uni-President Enterprises	1216 TT	NT$	34.1		9,112,638		9,440,279		1.7	%
HTC Corp	2498 TT	NT$	331.0		891,900		8,968,721		1.7	%
WPG Holdings	3702 TT	NT$	42.5		6,320,000		8,160,041		1.5	%
FamilyMart	5903 TT	NT$	54.0		4,412,652		7,265,831		1.3	%
Lien Hwa Industrial	1229 TT	NT$	14.0		16,476,881		6,982,896		1.3	%
Taiwan Secom	9917 TT	NT$	48.4		4,738,000		6,959,498		1.3	%
Yuanta Financial	2885 TT	NT$	20.4		10,520,593		6,504,157		1.2	%
Synnex Technology	2347 TT	NT$	57.5		2,809,240		4,907,305		0.9	%
Fubon Financial Holdings	2881 TT	NT$	30.8		4,948,000		4,622,332		0.8	%
KGI Securities	6008 TT	NT$	13.9		8,800,000		3,716,069		0.7	%
KGI Securities	KGIA LX	US$	8.5		409,239		3,456,274		0.6	%

United Kingdom									2.6	%
China Medical System Holdings	CMSH LN	£	2.4		3,623,188		13,887,992		2.6	%

United States									7.4	%
WuXi PharmaTech Cayman	WX US	US$	11.7		883,490		10,372,173		1.9	%
Far East Energy	FEEC US	US$	0.4		14,565,477		5,971,846		1.1	%
Mindray Medical International	MR US	US$	30.9		191,700		5,923,530		1.1	%
ProShares Ultrashort FTSE/Xinhua China	FXP US	US$	10.9		481,668		5,259,814		1.0	%
New Oriental Education	EDU US	US$	70.7		73,400		5,185,710		0.9	%
Sina Corp	SINA US	US$	30.0		162,700		4,881,000		0.9	%
The9	CMED US	US$	7.5		358,900		2,691,750		0.5	%

Equity linked securities (‘A’ shares)									11.8	%
Shenzhen Agricultural		US$	1.5		6,800,000		10,512,691		1.9	%
China Yangtze Power		US$	1.9		4,169,077		8,111,590		1.5	%
CITIC Securities		US$	3.6		2,260,600		8,108,322		1.5	%
Shanghai Yuyuan Tourist Board		US$	2.5		238,502,000		5,904,413		1.1	%
Suning Appliance		US$	2.0		2,874,013		5,868,735		1.1	%
Daqin Railway		US$	1.4		3,807,000		5,261,335		1.0	%
Ping An Insurance		HK	58.0		614,500		4,598,512		0.8	%
Wuliangye Yibin		US$	3.2		1,403,507		4,432,275		0.8	%
Zhejiang Guyuelongshan		US$	1.2		3,658,900		4,253,164		0.8	%
Dalian Zhangzidao Fishery		US$	3.5		1,100,565		3,899,302		0.7	%
Shanghai International Airport		US$	2.0		1,816,700		3,606,149		0.6	%


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

Direct									16.7	%
Queenbury Investment (Huiyan)		US$	90,345.0		450		40,655,250		7.5	%
Ugent Holdings		HK$	100.0		177,000,000		22,837,089		4.2	%
Qingdao Bright Moon		US$	0.3		31,827,172		8,275,065		1.5	%
HAND Enterprise Solutions		US$	16.4		500,000		8,200,000		1.5	%
Highlight Tech		US$	2.1		3,366,893		6,902,130		1.3	%
China Silicon (Series A Preferred)		US$	133.0		27,418		3,646,594		0.7	%
China Silicon			—		347,904		—		—
China Silicon (Warrants)			—		685,450		—		—
teco Optronics			—		1,861,710		—		—

Other assets & liabilities							42,285,640		7.8	%

INDEX DESCRIPTIONS

MSCI Golden Dragon Index

The MSCI Golden Dragon is a free float-adjusted market capitalization 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 capitalization-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 capitalization-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 organized 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 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 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 (246 2255)
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.

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.