Unassociated Document

THE CHINA FUND, INC. (CHN)

The Martin Currie Shanghai team

IN BRIEF
Net asset value per share	US$ 29.38
Market price	US$ 26.83
Premium/(discount)	(8.68	%)
Fund size	US$ 669.4m
Source: State Street Bank and Trust Company

At 28 February 2010				US$ returns
	China Fund NAV			MSCI Golden Dragon*
	%			%
One month		1.1			0.7
Year to date		(1.3	)		(6.9	)
One year		83.6			69.6
Three years %pa		14.9			3.8

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

During the short month of February (only 15 trading days in Shanghai), we circled the globe talking to investors. In each location there were questions about the ‘China Bubble’, with experts in the media predicting its imminent demise. Like Cassandra, they will be right eventually, but I see no evidence on the ground of a bubble about to burst. Some of the stimulus cash will have gone astray, and non-performing loans are doubtless forming in the banking system as I write. But the loan-to-deposit ratio in the banking system was just 66.9% at the end of 2009, and the general lack of leverage at any level of the economy – personal, corporate or governmental – does not speak to me of bubbles. The main distortion, caused by the currency peg, will dissipate as currency appreciation returns and the policy initiatives to boost consumption cause the trade surplus to disappear. In January exports rose 21% year on year, but imports 85%. Retail sales during the Chinese New Year holiday were up by 17.2% year on year.

Once the misleading low-base effect fades and inflation is seen to stabilize at an unthreatening 3–4%, we expect markets to rally. The ending of the National People’s Congress (last day 13 March) will also allay fears of aggressive government counter-measures. For the first time, we have initiated a 5% long position in renminbi non-deliverable futures, in anticipation of a resumption in the yuan’s appreciation.

Taiwan was the worst performer among the Chinese markets in February, for no particular reason that we can see. Some pointed to troubles with sovereign debt in Greece, Spain and Portugal, but this is not an asset class to which Taiwanese institutions have much exposure. The ruling party, the Kuomintang, lost three out of four by-elections at the month-end, but retains a commanding majority in the Legislative Yuan; indeed, Beijing will be so keen to avoid any resurgence of the pro-independence Democratic Progressive Party that the election losses will probably prompt the mainland to offer goodies to Taiwan (the decision to open the mainland market to Taiwanese agricultural products came out at the same time as the election results). Despite the hoo-hah over Taiwan’s purchase of US armaments (President Ma has to be seen to be buying them for his own constituents, and Beijing has to be seen to protest), negotiations on the free-trade agreement remain on track. Meanwhile, Taiwan’s fourth-quarter GDP growth came in at 9.2%, well ahead of all forecasts. This caused the government to increase its official 2010 GDP growth forecast from 4.4% to 4.7%.

INVESTMENT STRATEGY

The Fund is 97.3% invested with holdings in 62 companies. Of the portfolio, 20.1% is invested in Taiwan, 13.8% is in direct investments and 12.9% is exposed to the domestic A-share market.

The only purchase in February was the industrial automation company Hollysys, which provides controls for the high-speed rail and nuclear sectors.

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.

28 FEBRUARY 2010

FUND DETAILS
Market cap		US$ 611.23m
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
Healthcare		24.1	%		0.1	%
Consumer discretionary		15.8	%		5.8	%
Consumer staples		17.4	%		2.7	%
Financials		11.4	%		35.1	%
Industrials		10.7	%		7.4	%
Information technology		8.3	%		21.2	%
Energy		3.8	%		8.9	%
Materials		2.6	%		6.8	%
Utilities		1.8	%		4.0	%
Telecommunications		1.4	%		8.0	%
Other assets & liabilities		2.7	%		—

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		1.1			1.2
Year to date		(1.3	)		(4.9	)
Three years %pa		14.9			15.4

Past performance is not a guide to future returns. Three year returns are annualized.

Source: State Street Bank and Trust Company

15 LARGEST HOLDINGS (48.9%)
Queenbury Investment (Huiyin)	Consumer discretionary	7.0	%
Sinopharm Medicine Holding	Healthcare	5.2	%
Shandong Weigao Group	Healthcare	4.5	%
Wumart Stores	Consumer staples	4.3	%
China Medical	Healthcare	4.2	%
China Shineway Pharmaceutical	Healthcare	3.6	%
Ugent Holdings, Ltd	Industrials	3.4	%
China Fishery Group	Consumer staples	2.4	%
Shenzhen Agricultural Products	Consumer staples	2.3	%
Ruentex Development Co	Financials	2.3	%
WuXi PharmaTech Cayman	Healthcare	2.1	%
Far Eastern Department Stores	Consumer discretionary	2.0	%
Hsu Fu Chi International	Consumer staples	2.0	%
Xinao Gas Holdings	Utilities	1.8	%
China Metal Products	Materials	1.8	%

DIRECT INVESTMENTS (13.8%)
Queenbury Investment (Huiyin)	Consumer discretionary	7.0	%
Ugent Holdings	Industrials	3.4	%
HAND Enterprise Solutions	Information technology	1.1	%
Qingdao Bright Moon	Industrials	1.0	%
China Silicon (Series A Preferred)	Information technology	0.6	%
Highlight Tech	Industrials	0.5	%
China Silicon	Information technology	0.2	%
China Silicon Warrants	Information technology	0.0	%
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.		1.1		3.6			(1.3	)		83.6		14.9		20.4		12.0
MSCI Golden Dragon		0.7		(4.0	)		(6.9	)		69.6		3.8		10.4		9.6
Hang Seng Chinese Enterprise		0.4		(11.2	)		(9.9	)		67.1		7.8		17.6		20.5
Shanghai Stock Exchange 180		2.1		(7.1	)		(8.8	)		49.4		11.3		28.6		n/a

Past performance is not a guide to future returns.

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

Source for index data: MSCI for the MSCI Golden Dragon and Copyright 2010 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 28 February 2010.

THE CHINA FUND INC. PREMIUM/DISCOUNT

Past performance is not a guide to future returns.

Source: Martin Currie Inc as at 28 February 2010.

10 YEAR DIVIDEND HISTORY CHART

	2000		2001		2002		2003		2004		2005		2006		2007		2008		2009
Total		0.00		0.13		0.21		1.78		3.58		2.51		4.01		12.12		5.82		0.26
Income		0.00		0.13		0.06		0.07		0.20		0.22		0.30		0.28		0.48		0.26
Long-term capital		0.00		0.00		0.00		0.67		3.27		2.29		2.73		9.00		5.34		0.00
Short-term capital		0.00		0.00		0.15		1.04		0.11		0.00		0.98		2.84		0.00		0.00

Past performance is not a guide to future returns.

Source: State Street Bank and Trust Company.

28 FEBRUARY 2010

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

Hong Kong											16.4
China Shineway Pharmaceutical Group		2877	HK		HK$ 16.7		11,184,000	$	24,062,458		3.6
Xinao Gas Holdings		2688	HK		HK$ 18.6		5,084,000	$	12,156,537		1.8
Chaoda Modern Agriculture (Holdings)		682	HK		HK$ 8.4		10,507,357	$	11,371,012		1.7
Ports Design		589	HK		HK$ 19.1		4,549,500	$	11,218,427		1.7
Fushan International Energy Group		639	HK		HK$ 6.9		12,018,000	$	10,683,355		1.6
Intime Department Store Group		1833	HK		HK$ 6.6		12,568,629	$	10,654,674		1.6
Natural Beauty Bio-Technology		157	HK		HK$ 1.4		47,740,000	$	8,610,667		1.3
Golden Meditech Co		801	HK		HK$ 1.6		35,040,000	$	7,177,738		1.1
China Pharmaceutical Group		1093	HK		HK$ 4.2		12,918,000	$	6,923,329		1.0
Shangri-La Asia		69	HK		HK$ 12.9		3,061,555	$	5,088,129		0.8
Yorkey Optical International Cayman		2788	HK		HK$ 1.7		7,758,926	$	1,659,343		0.2
FU JI Food & Catering Services		1175	HK		HK$ 0.0		5,462,000	$	0		0.0

Hong Kong 'H' shares											17.9
Sinopharm Medicine Holding		297	HK		HK$ 34.9		7,786,000	$	34,949,385		5.2
Shandong Weigao Group Medical Polymer		8199	HK		HK$ 30.0		7,808,000	$	30,177,789		4.5
Wumart Stores		8277	HK		HK$ 14.9		14,888,000	$	28,617,490		4.3
ZTE Corp.		763	HK		HK$ 48.0		1,461,926	$	9,031,094		1.4
China Pacific Insurance		2601	HK		HK$ 31.8		1,463,442	$	5,967,269		0.9
Anhui Expressway		995	HK		HK$ 5.1		8,426,300	$	5,558,188		0.8
Zijin Mining Group		2899	HK		HK$ 6.6		6,402,000	$	5,451,845		0.8

Singapore											5.4
China Fishery Group	CFG SP				SG$ 1.7		13,255,000	$	15,943,169		2.4
Hsu Fu Chi International	HFCI SP				SG$ 2.0		9,484,000	$	13,499,876		2.0
Financial One Corp	FIN SP				SG$ 0.5		12,030,000	$	4,066,937		0.6
CDW Holding	CDW SP				SG$ 0.1		54,708,000	$	2,336,201		0.4

Taiwan											20.1
Ruentex Development Co		9945	TT		NT$ 39.0		12,694,000	$	15,435,841		2.3
Far Eastern Department Stores		2903	TT		NT$ 23.0		19,066,931	$	13,643,653		2.0
China Metal Products		1532	TT		NT$ 41.6		9,200,278	$	11,933,325		1.8
Cathay Financial Holdings		2882	TT		NT$ 51.7		6,454,000	$	10,403,673		1.6
WPG Holdings Co		3702	TT		NT$ 51.7		6,320,000	$	10,187,669		1.5
Uni-President Enterprises Corp.		1216	TT		NT$ 35.6		9,112,638	$	10,114,893		1.5
HTC Corp		2498	TT		NT$ 324.0		891,900	$	9,010,074		1.3
FamilyMart		5903	TT		NT$ 60.0		4,501,652	$	8,421,517		1.3
Taiwan Secom		9917	TT		NT$ 50.5		4,738,000	$	7,460,254		1.1
KGI Securities		6008	TT		NT$ 13.9		16,984,780	$	7,334,608		1.1
Lien Hwa Industrial		1229	TT		NT$ 14.2		16,476,881	$	7,295,088		1.1
Taiwan Life 4percent Conv Bond		n/a			NT$ 100.0		200,000,000	$	6,235,872		0.9
Yuanta Financial Holdings		2885	TT		NT$ 18.2		10,520,593	$	5,970,061		0.9
Synnex Technology International Corp.		2347	TT		NT$ 67.6		2,809,240	$	5,921,105		0.9
Fubon Financial Holdings		2881	TT		NT$ 35.5		4,948,000	$	5,476,779		0.8

United Kingdom											4.2
China Medical System Holdings	CMSH LN				£ 5.2		3,623,188	$	28,433,226		4.2

United States											6.6
WuXi PharmaTech Cayman	WX US				US$ 16.1		883,490	$	14,241,859		2.1
Mindray Medical International	MR US				US$ 38.2		191,700	$	7,315,272		1.1
Hollysys Automation Technologies	HOLI US				US$ 10.1		710,200	$	7,144,612		1.1
Far East Energy	FEEC US				US$ 0.5		14,565,477	$	6,787,512		1.0
Sina Corp.	SINA US				US$ 37.8		162,700	$	6,153,314		0.9
The9	CMED US				US$ 7.0		358,900	$	2,523,067		0.4

Equity linked securities ('A' shares)											12.9
Shenzhen Agricultural Products		n/a			US$ 2.3		6,800,000	$	15,480,812		2.3
Shanghai International Airport Co		n/a			US$ 2.8		4,326,700	$	12,132,040		1.7
Shanghai Yuyuan Tourist		n/a			US$ 4.3		238,502,000	$	10,146,643		1.5
Dalian Zhangzidao Fishery Group		n/a			US$ 6.7		1,260,565	$	8,506,293		1.3
China Yangtze Power		n/a			US$ 1.9		4,169,077	$	7,933,829		1.2
Suning Appliance		n/a			US$ 2.7		2,874,013	$	7,771,331		1.2
Daqin Railway		n/a			US$ 1.4		4,807,000	$	6,823,883		1.0
Shanghai Qiangsheng		n/a			US$ 1.3		4,800,000	$	6,455,318		1.0
Wuliangye Yibin		n/a			US$ 4.1		1,403,507	$	5,764,203		0.9
Zhejiang Guyuelongshan		n/a			US$ 1.5		3,658,900	$	5,365,601		0.8

Sector	Company (BBG ticker)		Price		Holding		Value US$		% of portfolio
Direct										13.8
Queenbury Investments (Huiyin)		n/a		US$ 104,686.0		450	$	47,108,700		7.0
Ugent Holdings		n/a		US$ 100.0		177,000,000	$	22,803,401		3.4
HAND Enterprise Solutions		n/a		US$ 15.3		500,000	$	7,669,000		1.1
Qingdao Bright Moon		n/a		US$ 0.2		31,827,172	$	6,842,842		1.0
China Silicon Corp., Series A Preferred		n/a		US$ 154.7		27,418	$	4,241,565		0.6
Highlight Tech Corp		n/a		US$ 1.8		1,683,447	$	3,000,000		0.5
China Silicon Corp. Common Stock		n/a		US$ 0.9		1,234,405	$	1,049,244		0.2
China Silicon Corp. Warrants		n/a		-		685,450	$	0		0.0
teco Optronics Corp		n/a		-		1,861,710	$	0		0.0
Hand Enterprise Solutions Preferred Stock		n/a		-		8,027,241	$	0		0.0

Other assets & liabilities							$	17,641,233		2.7

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.

à	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.