-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KMDDuis9ga/GSXuz3zf1n5SUqpXMJLEncC2eaP7N2/Y82JRe+rseZLPjVOenK8Bg LyDTxldfeCudb4MaLx8Nog== 0000950135-08-004776.txt : 20080703 0000950135-08-004776.hdr.sgml : 20080703 20080703122502 ACCESSION NUMBER: 0000950135-08-004776 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20080430 FILED AS OF DATE: 20080703 DATE AS OF CHANGE: 20080703 EFFECTIVENESS DATE: 20080703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHINA FUND INC CENTRAL INDEX KEY: 0000845379 IRS NUMBER: 000000000 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-05749 FILM NUMBER: 08937372 BUSINESS ADDRESS: STREET 1: 225 FRANKLIN ST CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6176622965 MAIL ADDRESS: STREET 1: 225 FRANKLIN ST CITY: BOSTON STATE: MA ZIP: 02110 N-CSRS 1 b70282a1nvcsrs.txt THE CHINA FUND, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-05749 --------------------------------------------- THE CHINA FUND, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) C/O STATE STREET BANK & TRUST 2 AVENUE DE LAFAYETTE, 2ND FLOOR P.O. BOX 5049 BOSTON, MA 02206-5049 - -------------------------------------------------------------------------------- (Address of principal executive offices)(Zip code) Copy to: Mary Moran Zeven Leonard B. Mackey, Jr., Esq. Secretary Clifford Chance US LLP The China Fund, Inc. 31 West 52nd Street 2 Avenue de Lafayette, 2nd Floor New York, New York 10019-6131 Boston, MA 02111 (Name and Address of Agent for Service) Registrant's telephone number, including area code: (888) 246-2255 Date of fiscal year end: October 31 Date of reporting period: April 30, 2008 ITEM 1. REPORT TO STOCKHOLDERS. 2 THE CHINA FUND, INC. SEMI-ANNUAL REPORT APRIL 30, 2008 (UNAUDITED) THE CHINA FUND, INC. TABLE OF CONTENTS
PAGE ---- Key Highlights 1 Asset Allocation 2 Industry Allocation 3 Chairman's Statement 4 Investment Manager's Statement 6 About the Portfolio Manager 8 Schedule of Investments 9 Financial Statements 16 Notes to Financial Statements 21 Other Information 27 Dividends and Distributions; Dividend Reinvestment and Cash Purchase Plan 29
THE CHINA FUND, INC. KEY HIGHLIGHTS (UNAUDITED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------- FUND DATA - -------------------------------------------------------------------------------------- NYSE STOCK SYMBOL CHN - -------------------------------------------------------------------------------------- LISTING DATE JULY 10, 1992 - -------------------------------------------------------------------------------------- SHARES OUTSTANDING 18,153,741 - -------------------------------------------------------------------------------------- TOTAL NET ASSETS (04/30/08) US$732.7 MILLION - -------------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE (04/30/08) $40.36 - -------------------------------------------------------------------------------------- MARKET PRICE PER SHARE (04/30/08) $35.06 - --------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------- TOTAL RETURN(1) - ----------------------------------------------------------------------------------------------- PERFORMANCE AS OF 04/30/08: NET ASSET VALUE MARKET PRICE - ----------------------------------------------------------------------------------------------- 6-Months (9.89)% (8.35)% - ----------------------------------------------------------------------------------------------- 3-Year Cumulative 165.82% 114.37% - ----------------------------------------------------------------------------------------------- 3-Year Annualized 38.53% 28.94% - ----------------------------------------------------------------------------------------------- 5-Year Cumulative 378.16% 334.12% - ----------------------------------------------------------------------------------------------- 5-Year Annualized 36.75% 34.13% - ----------------------------------------------------------------------------------------------- 10-Year Cumulative 546.86% 577.03% - ----------------------------------------------------------------------------------------------- 10-Year Annualized 20.53% 21.08% - -----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------- DIVIDEND HISTORY - ----------------------------------------------------------------------------------------------- RECORD DATE INCOME CAPITAL GAINS - ----------------------------------------------------------------------------------------------- 12/21/07 $0.2800 $11.8400 - ----------------------------------------------------------------------------------------------- 12/21/06 $0.2996 $3.7121 - ----------------------------------------------------------------------------------------------- 12/21/05 $0.2172 $2.2947 - ----------------------------------------------------------------------------------------------- 12/22/04 $0.1963 $3.3738 - ----------------------------------------------------------------------------------------------- 12/31/03 $0.0700 $1.7100 - ----------------------------------------------------------------------------------------------- 12/26/02 $0.0640 $0.1504 - ----------------------------------------------------------------------------------------------- 12/31/01 $0.1321 -- - ----------------------------------------------------------------------------------------------- 12/31/00 -- -- - ----------------------------------------------------------------------------------------------- 12/31/99 $0.1110 -- - ----------------------------------------------------------------------------------------------- 12/31/98 $0.0780 -- - ----------------------------------------------------------------------------------------------- 12/31/97 -- $0.5003 - ----------------------------------------------------------------------------------------------- 12/31/96 $0.0834 -- - ----------------------------------------------------------------------------------------------- 12/29/95 $0.0910 -- - ----------------------------------------------------------------------------------------------- 12/30/94 $0.0093 $0.6006 - ----------------------------------------------------------------------------------------------- 12/31/93 $0.0853 $0.8250 - ----------------------------------------------------------------------------------------------- 12/31/92 $0.0434 $0.0116 - -----------------------------------------------------------------------------------------------
(1) Total investment returns reflect changes in net asset value per share or market price, as the case may be, during each period and assume that dividends and capital gains distributions, if any, were reinvested in accordance with the dividend reinvestment plan. The net asset value per share percentages are not an indication of the performance of a shareholder's investment in the Fund, which is based on market price. Total investment returns are historical and do not guarantee future results. 1 THE CHINA FUND, INC. ASSET ALLOCATION AS OF APRIL 30, 2008 (UNAUDITED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- TEN LARGEST LISTED EQUITY INVESTMENTS * - ------------------------------------------------------------------------------- 1. Chaoda Modern Agriculture (Holdings), Ltd. 4.05% - ------------------------------------------------------------------------------- 2. Far Eastern Department Stores, Ltd. 4.05% - ------------------------------------------------------------------------------- 3. Yuanta Financial Holdings Co., Ltd. 3.43% - ------------------------------------------------------------------------------- 4. Uni-President Enterprises Corp. 2.76% - ------------------------------------------------------------------------------- 5. China Metal Products Co., Ltd. 2.45% - ------------------------------------------------------------------------------- 6. China Development Financial Holding Corp. 2.36% - ------------------------------------------------------------------------------- 7. Xinao Gas Holdings, Ltd. 2.33% - ------------------------------------------------------------------------------- 8. Daqin Railway Co., Ltd. Access Product 2.22% - ------------------------------------------------------------------------------- 9. Cathay Financial Holding Co., Ltd. 2.19% - ------------------------------------------------------------------------------- 10. Fubon Financial Holdings Co., Ltd. 2.05% - -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- DIRECT INVESTMENTS * - -------------------------------------------------------------------------------- 1. Qingdao Bright Moon 0.96% - -------------------------------------------------------------------------------- 2. China Silicon Corp., Series A Preferred 0.89% - -------------------------------------------------------------------------------- 3. Highlight Tech Corp. 0.82% - -------------------------------------------------------------------------------- 4. Wuxi PAIHO 0.50% - -------------------------------------------------------------------------------- 5. Sino Twinwood Pte Ltd. 0.42% - -------------------------------------------------------------------------------- 6. teco Optronics Corp. 0.00% - --------------------------------------------------------------------------------
* Percentages based on net assets at April 30, 2008. 2 INDUSTRY ALLOCATION (UNAUDITED) - -------------------------------------------------------------------------------- (Pie Chart) Consumer Discretionary 19.20 Financials 16.50 Consumer Staples 13.40 Industrials 12.90 Health Care 9.00 Information Technology 6.90 Materials 6.10 Energy 5.10 Utilities 2.30 Telecommunications 1.30 Others 7.30
Fund holdings are subject to change and percentages shown above are based on total net assets as of April 30, 2008. A complete list of holdings as of April 30, 2008 is contained in the Schedule of Investments included in this report. The most current available data regarding portfolio holdings can be found on our website, www.chinafundinc.com. You may also obtain holdings by calling 1-800- 246-2255. 3 THE CHINA FUND, INC. CHAIRMAN'S STATEMENT (UNAUDITED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Dear Stockholders, Over the past six months, the Fund's net asset value declined by 9.89%. This represented a considerable degree of outperformance relative to the benchmark MSCI Golden Dragon index, which fell 17.7% over the period. The Fund also remains well ahead of its benchmark over longer periods since the Fund's inception in June 1992. Including a record cash distribution of US$53 million, the Fund's total net asset value decreased by US$149.2 million, to US$732.7 million during the period. The net asset value of the Fund has fallen as a result of the effect of the US sub-prime crisis on international capital flows, as well as the looming impact of a slowdown in global trade. However, the Fund's manager has been able to limit the fall through a well-timed reduction in the Fund's heavy exposure to the A-share market, as well as through its emphasis on Taiwan, which is starting to enjoy the fruits of positive political change. The Fund distributed a record dividend for 2007 (US$12.12/share). The Fund's Board decided to offer a choice of both a cash and stock dividend, with a view to improving stock liquidity and controlling the expense ratio. Since the appointment last April of Martin Currie to manage the unlisted portion of the Fund as well as the listed portion, the Fund has been increasingly active in private equity. Five transactions have been concluded since August, and the unlisted portfolio has increased to 3.6% of the Fund. The Fund's private equity investments focus on late-stage/pre-IPO opportunities in entrepreneurial companies. The Fund's investment guidelines have been simplified, so that a minimum of 80% of assets must be invested in the securities of companies that are organized in China or that are principally traded in or derive at least 50% of their income from China markets. For this purpose, China includes Taiwan and Hong Kong. This gives the manager more leeway to invest in attractive China companies, wherever they are listed. We note that 34.4% of the portfolio is now in Taiwan-listed companies, as well as 4.3% and 4.4% in China companies listed in New York and Singapore, respectively. In recent months, China has been affected by two natural disasters -- the snowstorms at Chinese New Year and the recent earthquake in Sichuan. In contrast to the extent of the human tragedy, the economy has proved resilient so far. The manager expects the forthcoming Olympics to have a similarly limited real effect. Cost inflation has emerged as the main problem facing the Chinese. The manager believes that food inflation has already peaked, but the need gradually to lift price controls on such items as fuel and electricity will probably mean that the rate of inflation will not decrease swiftly, despite the global economic slowdown. As the year wears on, the manager expects worries to turn from inflation to growth. In this context, the renminbi should have relatively limited room for further appreciation against the US dollar. The Fund will continue to focus on management-owned companies catering to the growth in domestic consumption. Sectors of emphasis are healthcare, agriculture, non-bank finance and infrastructure. 4 THE CHINA FUND, INC. CHAIRMAN'S STATEMENT (CONTINUED) (UNAUDITED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Finally, we are pleased to announce the appointment of William Kirby as a new director of the Fund. William is the Geisinger Professor of History at Harvard, and the director of that university's Fairbank Center for East Asian Research. He is also a visiting professor at Peking University, Nanjing University and the Free University of Berlin, and has written extensively on the development of business and the economy in modern China. For monthly updates detailing the Fund's investments, please consult www.chinafundinc.com. Yours truly, J. Lightburn Chairman 5 THE CHINA FUND, INC. INVESTMENT MANAGER'S STATEMENT (UNAUDITED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- REVIEW OF LISTED AND DIRECT INVESTMENTS Over the past six months the Fund returned -9.89%. In so doing, it outperformed the MSCI Golden Dragon index, which fell 17.7% over the period. A high level of volatility characterized the period. This culminated in January, when both the A-share and H-share markets saw massive sell-offs. By early April, the A-share market had fallen almost 50% from its peak in October. In part, Chinese markets were victims of their own success; as the best-performing markets of 2007, Hong Kong and China offered the most attractive profits to investors, who were increasingly concerned about the prospect of a slowdown in the US economy. Many of our strongest contributors came from Taiwan, where the portfolio is overweight. After a long period of stagnation, the Kuomintang's successive victories in the island's legislative and presidential elections catalyzed a revival in March, on hopes of a rapprochement with the mainland. Here we saw good returns from domestically oriented stocks such as FAR EASTERN DEPARTMENT STORE, financials such as FUBON FINANCIAL HOLDINGS and YUANTA FINANCIAL HOLDINGS, and TAIWAN SECOM, which makes security systems. Steel exporter CHINA METAL PRODUCTS also did well, as did DATA SYSTEMS CONSULTING. Outside Taiwan, we benefited from holding Hong Kong's CHAODA MODERN AGRICULTURE, which exports rice and fruit, and from avoiding index heavyweights such as PETROCHINA, CHINA LIFE and HONG KONG EXCHANGES & CLEARING. Conversely, our relative returns were dampened by our avoidance of some of the largest Taiwanese index components. In this regard, we suffered from not holding TAIWAN SEMICONDUCTOR, CHUNGHWA TELECOM or CHINA STEEL CORPORATION. Negatives among our holdings included YANGZIJIANG SHIPBUILDING, FAR EAST ENERGY CORP and ZIJING MINING, which was hit by profit-taking after its strong run in 2007. The Fund's unlisted investments continue to perform satisfactorily. During the period we added a new unlisted holding in QINGDAO BRIGHT MOON, the world's largest processor of seaweed, the by-products of which are used in a surprisingly wide range of food and pharmaceutical applications. The company is seeking an A-share listing within three years. The other unlisted investments are in CHINA SILICON, which should benefit from rising polysilicon prices, SINO TWINWOOD, which produces ERP (enterprise resource planning) software, HIGHLIGHT TECH, which makes vacuum systems and components, and WUXI PAIHO, which makes velcro. All of these companies plan market listings in the next couple of years. At the end of April, the Fund was 92.8% invested in 72 companies. The reason for the relatively high cash level at quarter-end was a substantial pre-IPO investment in HUIYIN, an electrical retailer targeting rural consumers. We remain overweight in Taiwan, and have increased our exposure to the A-share market. The real deposit rate in China remains negative 5% and we estimate that the earnings growth of our A-share portfolio will reach 35% this year, so we expect a sharp rebound in the next few months. 6 THE CHINA FUND, INC. INVESTMENT MANAGER'S STATEMENT (CONTINUED) (UNAUDITED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- REVIEW OF LISTED AND DIRECT INVESTMENTS Over the summer we think China will stop worrying about inflation and start worrying about growth. Our company meetings reveal exporters pedaling hard to cope with increasing material, labor and environmental costs. The story is not wholly negative -- economic pressures are forcing another round of Western companies to seek the 'China price'. But as Western companies squeeze inventory to the bare minimum, even the winners are seeing smaller, albeit more frequent, orders. As the complaints of exporters escalate, coincident with a likely rally in the US dollar, we expect renminbi appreciation against this currency to slow and stop. Added to this, we see the first signs of a loosening of the purse strings as a couple of companies we visited struggled to secure reasonably priced loans in the first quarter, but have now been able to get them. 7 THE CHINA FUND, INC. ABOUT THE PORTFOLIO MANAGER (UNAUDITED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LISTED AND DIRECT INVESTMENT MANAGER Mr. Chris Ruffle serves as the portfolio manager for the Fund's portfolio of listed and direct securities. Mr. Ruffle joined Martin Currie in 1994. He is a Chinese and Taiwanese equity specialist with over 15 years investment experience in Asia. Fluent in Mandarin and Japanese, Mr. Ruffle has worked in the Far East since 1983. He worked originally in Beijing and Shanghai and then in Australia for a metal trading company. He then moved to Warburg Securities in 1987 as an analyst in Tokyo, before establishing Warburg's office in Taiwan. Mr. Ruffle also manages The Martin Currie China Hedge Fund and the China "A" Share Fund. 8 THE CHINA FUND, INC. SCHEDULE OF INVESTMENTS APRIL 30, 2008 (UNAUDITED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE (NOTE A) - --------------------------------- ------ -------------- COMMON STOCK AND OTHER EQUITY INTERESTS CHINA FINANCIALS -- (1.0%) Shanghai Lujiazui Finance & Trade Zone Development Co., Ltd. ........................ 4,459,405 $ 7,366,937 ------------ TOTAL CHINA -- (Cost $6,334,582) 1.0% 7,366,937 ----- ------------ HONG KONG CONSUMER DISCRETIONARY -- (6.4%) China Travel International Investment Hong Kong, Ltd. ......................................... 10,982,000 4,902,741 Huabao International Holdings, Ltd. ............ 12,790,000 11,485,420 Intime Department Store Group Co., Ltd.*........ 8,778,000 6,553,856 Ports Design, Ltd. ............................. 2,678,500 8,624,694 Shangri-La Asia, Ltd. .......................... 4,141,555 11,423,001 Yorkey Optical International Cayman, Ltd.#...... 16,424,000 4,003,233 ------------ 46,992,945 ------------ CONSUMER STAPLES -- (5.4%) Chaoda Modern Agriculture (Holdings), Ltd.(1)... 20,633,998 29,646,929 China Huiyuan Juice Group, Ltd.(1)*............. 13,000,500 10,006,671 ------------ 39,653,600 ------------ ENERGY -- (0.5%) China Rare Earth Holdings, Ltd.#................ 15,254,000 3,463,661 ------------ FINANCIALS -- (1.7%) SPG Land (Holdings), Ltd.(1)*#.................. 10,924,000 5,535,503 Tianjin Development Holdings, Ltd. ............. 8,440,000 6,821,208 ------------ 12,356,711 ------------ HEALTH CARE -- (3.8%) China Shineway Pharmaceutical Group, Ltd.#...... 11,184,000 7,431,992 Golden Meditech Co., Ltd.(1)#................... 35,040,000 12,136,855 Natural Beauty Bio-Technology, Ltd.#............ 32,780,000 7,989,891 ------------ 27,558,738 ------------ INDUSTRIALS -- (1.2%) TPV Technology, Ltd. ........................... 12,728,000 8,849,888 ------------ INFORMATION TECHNOLOGY -- (0.4%) Arcontech Corp.(2)*#............................ 18,386,000 -- Chinasoft International, Ltd.#.................. 19,230,000 3,330,361 ------------ 3,330,361 ------------
See notes to financial statements and notes to schedule of investments. 9 THE CHINA FUND, INC. SCHEDULE OF INVESTMENTS (CONTINUED) APRIL 30, 2008 (UNAUDITED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE (NOTE A) - --------------------------------- ------ -------------- COMMON STOCK AND OTHER EQUITY INTERESTS (CONTINUED) HONG KONG (CONTINUED) MATERIALS -- (0.1%) Ocean Grand Chemicals Holdings, Ltd.(2)*#....... 17,379,000 $ 691,138 ------------ UTILITIES -- (2.3%) Xinao Gas Holdings, Ltd.(1)#.................... 9,286,000 17,082,685 ------------ TOTAL HONG KONG -- (Cost $91,097,409) 21.8% 159,979,727 ----- ------------ HONG KONG -- "H" SHARES CONSUMER STAPLES -- (1.8%) Wumart Stores, Inc.#............................ 15,126,000 13,098,036 ------------ ENERGY -- (2.7%) China Oilfield Services, Ltd.(1)................ 7,132,000 13,138,448 China Shenhua Energy Co., Ltd.(1)............... 1,450,000 6,659,312 ------------ 19,797,760 ------------ HEALTH CARE -- (1.8%) Shandong Weigao Group Medical Polymer Co., Ltd.#......................................... 8,180,000 13,117,215 ------------ INDUSTRIALS -- (0.3%) China Railway Group, Ltd.(1)*................... 2,450,800 2,342,299 ------------ MATERIALS -- (1.3%) Zijin Mining Group Co., Ltd.(1)*................ 10,408,000 9,479,904 ------------ TELECOMMUNICATIONS -- (1.3%) ZTE Corp.(1).................................... 2,236,360 9,338,369 ------------ TOTAL HONG KONG -- "H" SHARES -- (Cost $48,154,974) 9.2% 67,173,583 ----- ------------ TOTAL HONG KONG (INCLUDING "H" SHARES) -- (Cost $139,252,383) 31.0% 227,153,310 ----- ------------ SINGAPORE CONSUMER DISCRETIONARY -- (1.0%) China Hongxing Sports, Ltd. .................... 15,307,000 7,665,336 ------------ CONSUMER STAPLES -- (1.9%) China Fishery Group, Ltd.#...................... 6,068,000 7,507,357 Hsu Fu Chi International, Ltd.#................. 8,409,000 6,192,651 ------------ 13,700,008 ------------
See notes to financial statements and notes to schedule of investments. 10 THE CHINA FUND, INC. SCHEDULE OF INVESTMENTS (CONTINUED) APRIL 30, 2008 (UNAUDITED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE (NOTE A) - --------------------------------- ------ -------------- COMMON STOCK AND OTHER EQUITY INTERESTS (CONTINUED) SINGAPORE (CONTINUED) INDUSTRIALS -- (1.0%) Yangzijiang Shipbuilding Holdings, Ltd.*........ 9,546,000 $ 7,522,071 ------------ INFORMATION TECHNOLOGY -- (0.4%) CDW Holding, Ltd.#+............................. 60,000,000 3,093,011 ------------ TOTAL SINGAPORE -- (Cost $34,681,148) 4.3% 31,980,426 ----- ------------ TAIWAN CONSUMER DISCRETIONARY -- (9.5%) FamilyMart Co., Ltd.#........................... 3,557,652 6,496,607 Far Eastern Department Stores, Ltd. ............ 17,630,080 29,646,444 HannStar Display Corp.*......................... 17,900,000 8,289,350 Merry Electronics Co., Ltd. .................... 3,584,340 9,500,164 Synnex Technology International Corp. .......... 4,738,050 12,682,522 Wintek Corp. ................................... 3,148,000 2,853,594 ------------ 69,468,681 ------------ CONSUMER STAPLES -- (4.3%) Lien Hwa Industrial Corp. ...................... 15,161,855 11,527,940 Uni-President Enterprises Corp. ................ 14,137,220 20,244,118 ------------ 31,772,058 ------------ FINANCIALS -- (11.5%) Cathay Financial Holding Co., Ltd. ............. 5,708,370 16,029,744 China Development Financial Holding Corp. ...... 36,871,940 17,256,758 Fubon Financial Holdings Co., Ltd. ............. 12,603,000 15,025,500 Ruentex Development Co., Ltd. .................. 9,477,000 10,427,112 Yuanta Financial Holdings Co., Ltd.*............ 26,413,545 25,157,823 ------------ 83,896,937 ------------ INDUSTRIALS -- (1.1%) Wah Lee Industrial Corp.#....................... 3,998,856 8,405,510 ------------ INFORMATION TECHNOLOGY -- (4.8%) Powertech Technology Inc. ...................... 3,581,100 14,407,907 Taiwan Secom#................................... 4,738,000 10,348,206 Tripod Technology Corp. ........................ 3,163,083 10,752,249 ------------ 35,508,362 ------------
See notes to financial statements and notes to schedule of investments. 11 THE CHINA FUND, INC. SCHEDULE OF INVESTMENTS (CONTINUED) APRIL 30, 2008 (UNAUDITED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE (NOTE A) - --------------------------------- ------ -------------- COMMON STOCK AND OTHER EQUITY INTERESTS (CONTINUED) TAIWAN (CONTINUED) MATERIALS -- (3.2%) China Metal Products Co., Ltd. ................. 8,392,675 $ 17,916,869 Yieh United Steel Corp.#........................ 11,379,600 5,232,430 ------------ 23,149,299 ------------ TOTAL TAIWAN -- (Cost $147,158,235) 34.4% 252,200,847 ----- ------------ UNITED KINGDOM HEALTH CARE -- (1.0%) China Medical System Holdings, Ltd.#+........... 3,623,188 7,442,055 ------------ TOTAL UNITED KINGDOM -- (Cost $9,940,990) 1.0% 7,442,055 ----- ------------ UNITED STATES CONSUMER DISCRETIONARY -- (1.1%) The9, Ltd., ADR(1)*#............................ 356,200 7,647,614 ------------ ENERGY -- (0.8%) Far East Energy Corp.*#+........................ 11,111,111 6,100,000 ------------ HEALTH CARE -- (2.4%) Mindray Medical International, Ltd., ADR(1)..... 367,000 12,478,000 WuXi PharmaTech Cayman Inc., ADR(1)*............ 287,041 5,293,036 ------------ 17,771,036 ------------ TOTAL UNITED STATES -- (Cost $34,604,886) 4.3% 31,518,650 ----- ------------ TOTAL COMMON STOCK AND OTHER EQUITY INTERESTS -- (Cost $371,972,224) 76.0% 557,662,225 ----- ------------ EQUITY LINKED SECURITIES CONSUMER DISCRETIONARY -- (1.2%) Wuliangye Yibin Co., Ltd. Access Product (expiration 01/20/10) 144A,(2)(3)............. 2,200,000 8,940,800 ------------ ENERGY -- (1.1%) China Yangtze Power Co., Ltd. Access Product (expiration 10/26/10) 144A,(2)(4)............. 4,169,077 8,346,492 ------------
See notes to financial statements and notes to schedule of investments. 12 THE CHINA FUND, INC. SCHEDULE OF INVESTMENTS (CONTINUED) APRIL 30, 2008 (UNAUDITED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE (NOTE A) - --------------------------------- ------ -------------- EQUITY LINKED SECURITIES (CONTINUED) FINANCIALS -- (2.3%) Financial Street Holding Co., Ltd. Access Product (expiration 02/13/12) 144A,(2)(4)*.... 3,191,059 $ 9,088,136 Ping An Insurance (Group) Company of China, Ltd. Access Product (expiration 04/01/13) 144A,(2)(4)................................... 773,600 7,638,527 ------------ 16,726,663 ------------ INDUSTRIALS -- (7.0%) China Vanke Co., Ltd. Access Product (expiration 01/20/10) 144A,(2)(3)......................... 2,833,650 9,863,936 Daqin Railway Co., Ltd. Access Product (expiration 11/02/11) 144A,(2)(4)............. 6,907,000 16,300,520 Shanghai International Airport Co., Ltd. Access Product (expiration 01/20/10) 144A,(2)(3)..... 1,816,700 5,829,790 Shanghai Tunnel Engineering Co., Ltd. Access Product (expiration 01/17/12) 144A,(2)(3)..... 4,439,247 8,301,392 Shanghai Zhenhua Port Machinery Co., Ltd. Access Product (expiration 10/26/10) 144A,(2)(4)..... 4,462,752 10,652,589 ------------ 50,948,227 ------------ MATERIALS -- (1.5%) Qinghai Salt Lake Potash Co., Ltd. Access Product (expiration 10/26/10) 144A,(2)(4)..... 887,909 11,054,467 ------------ TOTAL EQUITY LINKED SECURITIES -- (Cost $57,513,293) 13.1% 96,016,649 ----- ------------ DIRECT INVESTMENTS INDUSTRIALS -- (2.3%) Highlight Tech Corp., (acquired 09/11/07)(2)(5)*#+............................ 3,366,893 5,993,069 Qingdao Bright Moon, (acquired 02/28/08)(2)(5)*#+............................ 31,827,172 7,001,976 Wuxi PAIHO, (acquired 09/17/07)(2)(5)*#......... 11,734,701 3,680,000 ------------ 16,675,045 ------------
See notes to financial statements and notes to schedule of investments. 13 THE CHINA FUND, INC. SCHEDULE OF INVESTMENTS (CONTINUED) APRIL 30, 2008 (UNAUDITED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE (NOTE A) - --------------------------------- ------ -------------- DIRECT INVESTMENTS (CONTINUED) INFORMATION TECHNOLOGY -- (1.3%) China Silicon Corp. Warrants (expiration 11/30/10)(2)(5)*#+............................ 27,418 $ -- China Silicon Corp., Series A Preferred (acquired 11/30/07)(2)(5)*#+.................. 27,418 6,525,484 Sino Twinwood Pte Ltd., (acquired 05/02/07)(2)(5)*#+............................ 500,000 3,050,000 teco Optronics Corp., (acquired 04/26/04)(2)(5)*#+............................ 1,861,710 -- ------------ 9,575,484 ------------ TOTAL DIRECT INVESTMENTS -- (Cost $26,874,796) 3.6% 26,250,529 ----- ------------ PRINCIPAL AMOUNT ----------- COLLATERAL FOR SECURITIES ON LOAN -- (10.3%) SHORT TERM -- (10.3%) Securities Lending Quality Trust................ $75,213,615 75,213,615 ------------ TOTAL COLLATERAL FOR SECURITIES ON LOAN -- (Cost $75,213,615) 10.3% 75,213,615 ----- ------------ SHORT TERM INVESTMENTS UNITED STATES Repurchase Agreement with State Street Bank and Trust, 0.15%, 05/01/08++............................. 26,881,000 26,881,000 ------------ TOTAL UNITED STATES -- (Cost $26,881,000) 3.7% 26,881,000 ----- ------------ TOTAL INVESTMENTS -- (Cost $558,454,928) 106.7% 782,024,018 ----- ------------ OTHER ASSETS AND LIABILITIES (6.7)% (49,282,010) ----- ------------ NET ASSETS 100.0% $732,742,008 ===== ============
See notes to financial statements and notes to schedule of investments. 14 THE CHINA FUND, INC. SCHEDULE OF INVESTMENTS (CONTINUED) APRIL 30, 2008 (UNAUDITED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Notes to Schedule of Investments * Denotes non-income producing security. # Illiquid security. + Affiliated issuer (see Note F). ++ Repurchase agreement, dated 04/30/2008, due 05/01/2008 with repurchase proceeds of $26,881,112 is collateralized by US Treasury Bill, 1.43% due 09/18/2008 with a market value of $27,419,490. (1) A portion or all of the security was held on loan. As of April 30, 2008, the market value of the securities loaned was $71,893,805. (2) Security valued at fair value using methods determined in good faith by or at the direction of the Board of Directors. (3) Equity linked securities issued by Citigroup Global Markets Holdings. (4) Equity linked securities issued by Credit Lyonnais (CLSA). (5) Direct investments are generally restricted as to resale and do not have a readily available resale market. On the date of acquisition of each direct investment, there were no market quotations on similar securities, and such investments were therefore valued in good faith by the Board of Directors at fair market value. 144A Securities restricted for resale to Qualified Institutional Buyers. ADR American Depositary Receipt. See notes to financial statements and notes to schedule of investments. 15 THE CHINA FUND, INC. STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 2008 (UNAUDITED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ASSETS Investments in securities, at value (cost $438,341,498) (Note A).. $667,604,807 Investments in affiliated securities, at value (cost $44,899,815) (Notes A and F)................................................ 39,205,596 Collateral for securities loaned.................................. 75,213,615 Cash.............................................................. 696 Foreign currency, at value (cost $8,914,986)...................... 8,873,936 Receivable for investments sold................................... 16,724,760 Receivable for securities lending income.......................... 116,757 Dividends receivable.............................................. 1,538,120 Interest receivable............................................... 112 Prepaid expenses.................................................. 19,709 Miscellaneous assets.............................................. 153,256 ------------ TOTAL ASSETS........................................................ 809,451,364 ------------ LIABILITIES Payable upon return of collateral for securities loaned........... 75,213,615 Investment management fee payable (Note B)........................ 412,972 Administration and custodian fees payable (Note B)................ 213,350 Directors fee payable (Note B).................................... 11,194 Contingent liability (Note A)..................................... 717,795 Accrued expenses and other liabilities............................ 140,430 ------------ TOTAL LIABILITIES................................................... 76,709,356 ------------ TOTAL NET ASSETS.................................................... $732,742,008 ============ COMPOSITION OF NET ASSETS: Paid in capital (Note C).......................................... 380,196,385 Undistributed net investment income............................... 389,759 Accumulated net realized gain on investments and foreign currency transactions................................................... 128,626,455 Net unrealized appreciation on investments and foreign currency translation.................................................... 223,529,409 ------------ TOTAL NET ASSETS.................................................... $732,742,008 ============ NET ASSET VALUE PER SHARE ($732,742,008/18,153,741 shares of common stock outstanding)...... $40.36 ======
See notes to financial statements. 16 THE CHINA FUND, INC. STATEMENT OF OPERATIONS FOR SIX MONTHS ENDED APRIL 30, 2008 (UNAUDITED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INVESTMENT INCOME: Dividend income -- (including dividends of $362,319 from non- controlled affiliates)........................................ $ 2,654,421 Interest income.................................................. 646,441 Securities lending income........................................ 845,963 ------------- TOTAL INVESTMENT INCOME....................................... 4,146,825 ------------- EXPENSES Investment Management fees (Note B).............................. 2,250,975 Custodian fees (Note B).......................................... 628,798 Administration fees (Note B)..................................... 310,986 Directors' fees and expenses (Note B)............................ 168,859 Stock dividend tax expense....................................... 166,789 Legal fees....................................................... 116,353 Printing and postage............................................. 67,431 Shareholder service fees......................................... 40,951 Chief Compliance Officer fee..................................... 30,561 Insurance........................................................ 23,786 Audit and tax service fees....................................... 27,621 Stock exchange listing fee....................................... 15,272 Transfer agent fees.............................................. 25,361 Miscellaneous expenses........................................... 12,413 ------------- TOTAL EXPENSES................................................ 3,886,156 ------------- Expense reduction................................................ (187,405) ------------- NET EXPENSES.................................................. 3,698,751 ------------- NET INVESTMENT INCOME.............................................. 448,074 ------------- REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS AND FOREIGN CURRENCY Net realized gain on investment transactions..................... 127,503,021 Net realized gain on foreign currency transactions............... 1,143,143 ------------- 128,646,164 ------------- Net change in unrealized depreciation on investments and foreign currency transactions......................................... (225,195,391) ------------- (225,195,391) ------------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS............................................ (96,549,227) ------------- NET DECREASE IN NET ASSETS FROM OPERATIONS......................... $ (96,101,153) =============
See notes to financial statements. 17 THE CHINA FUND, INC. STATEMENTS OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED APRIL 30, 2008 OCTOBER 31, 2007 ---------------- ---------------- (UNAUDITED) (DECREASE)/INCREASE IN NET ASSETS FROM OPERATIONS Net investment income................................ $ 448,074 $ 4,118,400 Net realized gain on investments and foreign currency transactions...................................... 128,646,164 172,697,839 Net (decrease)/increase in unrealized (depreciation)/appreciation on investments and foreign currency translations..................... (225,195,391) 305,398,733 ------------- ------------ Net (decrease)/increase in net assets from operations........................................ (96,101,153) 482,214,972 ------------- ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income................................ (4,081,269) (4,343,068) Capital gains........................................ (172,579,378) (53,811,419) ------------- ------------ Total dividends and distributions to shareholders.... (176,660,647) (58,154,487) ------------- ------------ CAPITAL SHARE TRANSACTIONS: Fund shares sold (Note C)............................ -- -- Reinvestment of dividends and distributions (3,577,780 and 79,741 shares, respectively)....... 123,648,061 2,589,184 ------------- ------------ Net increase in net assets from capital share transactions...................................... 123,648,061 2,589,184 ------------- ------------ NET (DECREASE)/INCREASE IN NET ASSETS.................. (149,113,739) 426,649,669 NET ASSETS: Beginning of year.................................... 881,855,747 455,206,078 ------------- ------------ End of period........................................ $ 732,742,008 $881,855,747 ============= ============ Undistributed net investment income, end of period..... $ 389,759 $ 4,022,954 ============= ============
See notes to financial statements. 18 THE CHINA FUND, INC. STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED APRIL 30, 2008 (UNAUDITED) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH - - ----------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net decrease in net assets resulting from operations............. $ (96,101,153) Adjustments to reconcile net decrease in net assets from operations to net cash provided from operating activities: Purchases of investment securities............................ (177,684,018) Proceeds from investments sold................................ 248,027,838 Net maturities of short-term investments...................... (26,881,000) Decrease in collateral for securities loaned.................. 74,864,825 Increase in dividends and interest receivable................. (995,452) Increase in receivable for securities lending income.......... (6,837) Increase in receivable for investments sold................... (12,918,800) Decrease in equity on foreign currency contracts.............. (160,414) Increase in prepaid expenses and miscellaneous assets......... (18,064) Decrease in payable for securities purchased.................. (280,617) Decrease in payable upon return of collateral for securities (74,864,825) loaned...................................................... Decrease in accrued expenses and other liabilities............ (590,958) Unrealized appreciation/depreciation on securities and 225,195,391 currencies.................................................. Net realized gain/loss from investments and currencies........ (128,646,164) ------------- Net cash provided from operating activities................. 28,939,752 ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash distributions paid....................................... (53,012,584) ------------- Net cash used for financing activities...................... (53,012,584) ------------- NET INCREASE IN CASH............................................... (24,072,832) CASH AT BEGINNING OF PERIOD........................................ 32,947,464 ------------- CASH AT END OF PERIOD.............................................. $ 8,874,632 ============= Noncash financing activities not included herein consist of: Reinvestment of distributions................................. $ 123,648,063
19 THE CHINA FUND, INC. FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING FOR THE PERIOD(S) INDICATED - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
SIX MONTHS ENDED APRIL 30, 2008 2007 2006 2005 2004* 2003* ----------- -------- -------- -------- -------- -------- (UNAUDITED) PER SHARE OPERATION PERFORMANCE Net asset value, beginning of year............................. $ 60.50 $ 31.40 $ 23.25 $ 26.27 $ 26.93 $ 14.92 Net investment income.............. 0.03 0.28 0.30 0.21 0.21 0.06 Net realized and unrealized gain/(loss) on investments and foreign currency transactions.... (6.56) 32.83 10.36 0.34 0.91 12.16 -------- -------- -------- -------- -------- -------- Total gain/(loss) from investment operations....................... (6.53) 33.11 10.66 0.55 1.12 12.22 -------- -------- -------- -------- -------- -------- Less dividends and distributions: Dividend from net investment income........................ (0.28) (0.30) (0.22) (0.20) (0.07) (0.06) Distributions from net realized capital gains.................... (11.84) (3.71) (2.29) (3.37) (1.71) (0.15) -------- -------- -------- -------- -------- -------- Total dividends and distributions.. (12.12) (4.01) (2.51) (3.57) (1.78) (0.21) -------- -------- -------- -------- -------- -------- Capital Share Transactions: (Dilution) to net asset value, resulting from issuance of shares in stock dividend................ (1.49) 0.00 0.00 0.00 0.00 0.00 -------- -------- -------- -------- -------- -------- Net asset value, end of period..... $ 40.36 $ 60.50 $ 31.40 $ 23.25 $ 26.27 $ 26.93 ======== ======== ======== ======== ======== ======== Per share market price, end of period........................... $ 35.06 $ 51.67 $ 30.40 $ 24.55 $ 29.15 $ 34.74 ======== ======== ======== ======== ======== ======== TOTAL INVESTMENT RETURN (BASED ON MARKET PRICE).......... (8.35)%(1) 90.97% 37.20% (5.50)% (12.16)% 179.41% ======== ======== ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000's).. $732,742 $881,856 $455,206 $334,496 $264,886 $271,278 Ratio of net expenses to average net assets....................... 1.04%(2) 1.08% 1.26% 1.44% 1.41% 1.76% Ratio of gross expenses to average net assets....................... 1.08%(2) 1.08% 1.26% 1.44% 1.41% 1.76% Ratio of net expenses to average net assets, excluding stock dividend tax expense............. 0.99%(2) 1.04% 1.23% 1.38% 1.34% 1.68% Ratio of net investment income to average net assets............... 0.13%(2) 0.67% 1.09% 1.04% 0.78% 0.32% Portfolio turnover rate............ 25% 46% 50% 26% 40% 55%
* Financial highlights were audited by a previous audit firm. (1) Not Annualized (2) Annualized See notes to financial statements. 20 THE CHINA FUND, INC. NOTES TO FINANCIAL STATEMENTS APRIL 30, 2008 (UNAUDITED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The China Fund, Inc. (the "Fund") was incorporated under the laws of the State of Maryland on April 28, 1992, and is a non-diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund's investment objective is long-term capital appreciation through investments in the equity securities of companies engaged in a substantial amount of business in the People's Republic of China. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. USE OF ESTIMATES: The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses for the period. Actual results could differ from these estimates. The significant estimates made as of, and for the six months ended, April 30, 2008 relate to the contingent liability resulting from the sale of Captive Finance in March 2007. A reserve of 10% of the net sale proceeds was established to cover any potential liabilities from the representation and warranties provided by the Fund in the transaction. SECURITY VALUATION: Portfolio securities listed on recognized United States or foreign securities exchanges are valued at the last quoted sales price in the principal market where they are traded. Listed securities with no such sales price and unlisted securities are valued at the mean between the current bid and asked prices, if any, of two brokers. Short-term investments having maturities of sixty days or less are valued at amortized cost (original purchase cost as adjusted for amortization of premium or accretion of discount) which when combined with accrued interest approximates market value. Open end investment companies are valued at net asset value per share. Securities for which market quotations are readily available are valued at current market value. Securities for which market quotations are not readily available are valued in good faith at fair value using methods determined by the Board of Directors. Direct investments not traded on an exchange are valued at fair value as determined by the Board of Directors. REPURCHASE AGREEMENTS: In connection with transactions in repurchase agreements, it is the Fund's policy that its custodian take possession of the underlying collateral securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. If the seller defaults, and the fair value of the collateral declines, realization of the collateral by the Fund may be delayed or limited. SECURITIES LENDING: The Fund may lend any of its securities held by State Street Bank and Trust Company ("State Street") as custodian to certain qualified brokers, except those securities which the Fund or the Investment Manager specifically identifies as not being available. By lending its investment securities, the Fund attempts to increase its net investment income through the receipt of interest on the loan. Any gain or loss in the market price of the securities loaned that might occur and any interest or dividends declared during the term of the loan would accrue to the account of the Fund. Risks of delay in recovery of the securities or even loss of rights in the collateral may occur should the borrower of the securities fail financially. Risks may also arise to the extent that the value of the collateral decreases below the value of the securities loaned. 21 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Upon entering into a securities lending transaction, the Fund receives cash or other securities as collateral in an amount equal to or exceeding 100% of the current market value of the loaned securities with respect to securities of the U.S. government or its agencies, 102% of the current market value of the loaned securities with respect to U.S. securities and 105% of the current market value of the loaned securities with respect to foreign securities. Any cash received as collateral is generally invested by State Street, acting in its capacity as securities lending agent (the "Agent"), in the Securities Lending Quality Trust. A portion of the dividends received on the collateral is rebated to the borrower of the securities and the remainder is split between the Agent and the Fund. As of April 30, 2008, the Fund had loaned securities which were collateralized by cash and short term investments. The value of the security on loan and the value of the related collateral were as follows:
VALUE OF VALUE OF VALUE OF CASH NON-CASH TOTAL SECURITY COLLATERAL COLLATERAL* COLLATERAL - ----------- ----------- ----------- ----------- $71,893,805 $75,213,615 $881,783 $76,095,398
* The Fund cannot repledge or resell this collateral. The non-cash collateral is comprised of government securities. FOREIGN CURRENCY TRANSLATIONS: The records of the Fund are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the current exchange rates. Purchases and sales of investment securities and income and expenses are translated on the respective dates of such transactions. Net realized gains and losses on foreign currency transactions represent net gains and losses from the disposition of foreign currencies, currency gains and losses realized between the trade dates and settlement dates of security transactions, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The effects of changes in foreign currency exchange rates on investments in securities are not segregated in the Statement of Operations from the effects of changes in market prices of those securities, but are included in realized and unrealized gain or loss on investments. OPTION CONTRACTS: The Fund may purchase and write (sell) call options and put options provided the transactions are for hedging purposes and the initial margin and premiums do not exceed 5% of total assets. Option contracts are valued daily and unrealized gains or losses are recorded based upon the last sales price on the principal exchange on which the options are traded. The Fund will realize a gain or loss upon the expiration or closing of the option contract. When an option is exercised, the proceeds on sales of the underlying security for a written call option, the purchase cost of the security for a written put option, or the cost of the security for a purchased put or call option is adjusted by the amount of premium received or paid. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. Risks may also arise from an illiquid secondary market or from the inability of counter parties to meet the terms of the contract. 22 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EQUITY LINKED SECURITIES: The Fund may invest in equity-linked securities such as linked participation notes, equity swaps and zero-strike options and securities warrants. Equity-linked securities currently held by the Fund, identified as "Access Products" in the Schedule of Investments, are privately issued securities whose investment results are designed to correspond generally to the performance of a specified stock index or "basket" of stocks, or a single stock. Access Products may be used by the Fund to gain exposure to countries that place restrictions on investments by foreigners. To the extent that the Fund invests in Access Products whose return corresponds to the performance of a foreign securities index or one or more foreign stocks, investing in Access Products will involve risks similar to the risks of investing in foreign securities. In addition, the Fund bears the risk that the issuer of an Access Product may default on its obligation under the terms of the arrangement with the counterparty. Access Products are often used for many of the same purposes as, and share many of the same risks with, derivative instruments. In addition, Access Products may be considered illiquid. At April 30, 2008, the Fund held equity-linked Access Product warrants through Credit Lyonnais ("CLSA") and Citigroup Global Markets Holdings, the issuers. Under the terms of the agreements, each warrant entitles the Fund to receive from the issuers an amount in U.S. dollars linked to the performance of specific equity shares. DIRECT INVESTMENTS: The Fund may invest up to 25% of the net proceeds from its offering of its outstanding common stock in direct investments. Direct investments are generally restricted and do not have a readily available resale market. The value of these securities at April 30, 2008 was $26,250,529 or 3.6% of the Fund's net asset value. The table below details the acquisition date, cost, and value of the Fund's direct investments as determined by the Board of Directors of the Fund. The Fund does not have the right to demand that such securities be registered.
SECURITY ACQUISITION DATE COST MARKET - -------- ---------------- ----------- ----------- China Silicon Corp., Series A Preferred*........ 11/30/2007 $ 6,525,484 $ 6,525,484 Highlight Tech. Corp. .......................... 09/11/2007 $ 6,000,000 $ 5,993,069 Qingdao Bright Moon............................. 02/28/2008 $ 6,937,718 $ 7,001,976 Sino Twinwood Pte Ltd. ......................... 05/02/2007 $ 3,164,274 $ 3,050,000 teco Optronics Corp. ........................... 04/26/2004 $ 567,320 $ -- Wuxi PAIHO...................................... 09/17/2007 $ 3,680,000 $ 3,680,000 ----------- ----------- $26,874,796 $26,250,529 =========== ===========
* The purchase of China Silicon Corp., Series A Preferred resulted in the Fund receiving 27,418 shares of China Silicon Corp. common stock warrants. Each warrant entitles the Fund to purchase twenty five shares of common stock at an exercise price of $2.98 USD per share, subject to adjustment. INDEMNIFICATION OBLIGATIONS Under the Fund's organizational documents, its Directors and Officers are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business the Fund enters into contracts that provide general indemnifications to other parties. The Fund's maximum exposure under these 23 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are recorded as of the trade date. Realized gains and losses from securities sold are recorded on the identified cost basis. Dividend income is recorded on the ex- dividend date, or, in the case of dividend income on foreign securities, on the ex-dividend date or when the Fund becomes aware of its declaration. Interest income is recorded on the accrual basis. All premiums and discounts are amortized/accreted for both financial reporting and federal income tax purposes. Dividend and interest income generated in Taiwan is subject to a 20% withholding tax. Stock dividends received (except those which have resulted from capitalization of capital surplus) are taxable at 20% of the par value of the stock dividends received. The Fund records the taxes paid on stock dividends as an operating expense. DIVIDENDS AND DISTRIBUTIONS: The Fund intends to distribute to its shareholders, at least annually, substantially all of its net investment income and any net realized capital gains. Income and capital gains distributions are determined in accordance with U.S. income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to differing book and tax treatments for foreign currency transactions. The Fund made distributions of $45,476,998 from Ordinary Income and $131,183,649 from Long-Term Capital Gains during the six months ended April 30, 2008. For the year ended October 31, 2007 the Fund made distributions of $18,566,759 from Ordinary Income and $39,587,728 from Long-Term Capital Gains. FEDERAL INCOME TAXES: The Fund has qualified and intends to qualify in the future as a regulated investment company by complying with the provisions of Subchapter M of the Internal Revenue Code available to certain investment companies, including making distributions of taxable income and capital gains sufficient to relieve it from all, or substantially all, federal income and excise taxes. NOTE B -- ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Martin Currie Inc., the investment manager for the Fund receives a fee, computed weekly and payable monthly, at the following annual rates: 0.70% of the first US$315 million of the Fund's average weekly net assets invested in listed assets; and 0.50% of the Fund's average weekly net assets invested in listed assets in excess of US$315 million. They also receive a fee computed weekly and payable monthly, at an annual rate of 2.0% of the average weekly value of the Fund's assets invested in direct investments. No director, officer or employee of the investment manager or any affiliate will receive any compensation from the Fund for serving as an officer or director of the Fund. The Fund pays the Chairman of the Board and each of the directors (who is not a director, officer or employee of the investment manager or any affiliate thereof) an annual fee of $27,500 and $15,000 respectively, plus $3,000 for each Board of Directors', Audit and Nominating Committee meetings attended, $2,000 for each telephonic meeting attended and $1,000 for each Valuation Committee teleconference attended. In addition, the Fund will reimburse each of the directors for travel and out-of-pocket expenses incurred in connection with attending Board of Directors' meetings. 24 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- State Street provides, or arranges for the provision of certain administrative services for the Fund, including preparing certain reports and other documents required by federal and/or state laws and regulations. The Fund pays State Street a fee at an annual rate of 0.13% of the Fund's average daily net assets up to $150 million, 0.11% of the next $150 million and 0.06% of those assets in excess of $300 million subject to certain minimum requirements for fund administration services. On March 6, 2008 the Board approved an amendment to the fee schedule as follows: the Fund pays State Street a fee at an annual rate of 0.13% of the Fund's average daily net assets up to $150 million, 0.11% of the next $150 million, 0.06% of the next $400 million and 0.05% of those in excess of $400 million subject to certain minimum requirements for fund administration services. The Fund also pays State Street $100,000 per year for certain legal administration services, including corporate secretarial services and preparing regulatory filings. The Fund also has a contract with State Street to provide custody and fund accounting services to the Fund. For these services, the Fund pays State Street asset-based fees that vary according to the number of positions and transactions plus out of pocket expenses. NOTE C -- CAPITAL STOCK The Board of Directors of the Fund has approved a share repurchase plan. Under the program, the Fund will repurchase shares at management's discretion at times when it considers the repurchase to be consistent with the objectives of the program. For the six months ended April 30, 2008, the Fund did not purchase any shares under this program. At April 30, 2008, 100,000,000 shares of $.01 par value common stock were authorized. NOTE D -- INVESTMENT TRANSACTIONS For the six months ended April 30, 2008, the Fund's cost of purchases and proceeds from sales of investment securities, other than short-term securities, were $177,748,277 and $246,891,208, respectively. At April 30, 2008, the cost of investments for federal income tax purposes was $483,241,313. Gross unrealized appreciation of investments was $254,525,987, while gross unrealized depreciation of investments was $30,956,897, resulting in net unrealized appreciation of investments of $223,569,090. NOTE E -- INVESTMENTS IN CHINA The Fund's investments in China companies involve certain risks not typically associated with investments in securities of U.S. companies or the U.S. Government, including risks relating to (1) social, economic and political uncertainty; (2) price volatility, lesser liquidity and smaller market capitalization of securities markets in which securities of China companies trade; (3) currency exchange fluctuations, currency blockage and higher rates of inflation; (4) controls on foreign investment and limitations on repatriation of invested capital and on the Fund's ability to exchange local currencies for U.S. dollars; (5) governmental involvement in and control over the economy; (6) risk of nationalization or expropriation of assets; (7) the nature of the smaller, less seasoned and newly organized China companies, particularly in China; and (8) the absence of uniform accounting, auditing and financial reporting standards, practices and disclosure requirements and less government supervision and regulation. 25 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTE F -- INVESTMENTS IN NON-CONTROLLED AFFILIATES*:
DIVIDENDS BALANCE OF GROSS GROSS BALANCE OF INCLUDED IN SHARES HELD PURCHASES SALES SHARES HELD VALUE DIVIDEND INCOME OCTOBER 31, AND AND APRIL 30, APRIL 30, NON-CONTROLLED NAME OF ISSUER 2007 ADDITIONS REDUCTIONS 2008 2008 AFFILIATES - ---------------------------- ----------- ---------- ---------- ----------- ---------- --------------- CDW Holding, Ltd. .......... 60,000,000 -- -- 60,000,000 $3,093,011 $ -- China Medical System Holdings, Ltd. ........... 3,623,188 -- -- 3,623,188 $7,442,055 $362,319 China Silicon Corp., Series A Preferred............... -- 27,418 -- 27,418 $6,525,484 $ -- China Silicon Corp. Warrants.................. -- 27,418 -- 27,418 $ -- $ -- Far East Energy Corp. ...... 11,111,111 -- -- 11,111,111 $6,100,000 $ -- Highlight Tech Corp. ....... 3,366,893 -- -- 3,366,893 $5,993,069 $ -- Qingdao Bright Moon......... -- 31,827,172 -- 31,827,172 $7,001,976 $ -- Sino Twinwood Pte, Ltd. .... 500,000 -- 500,000 $3,050,000 $ -- teco Optronics Corp. ....... 1,861,710 -- -- 1,861,710 $ -- $ --
* Affiliated issuers, as defined in the 1940 Act, include issuers in which the Fund held 5% or more of the outstanding voting securities. NOTE G -- NEW ACCOUNTING PRONOUNCEMENTS In accordance with Securities and Exchange Commission guidance, the Fund implemented the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes, on April 30, 2008. The Fund has reviewed the tax positions for the open tax period as of April 30, 2008 and the open tax years of October 31, 2004 through October 31, 2007 and has determined that the implementation of FIN 48 did not have a material impact on the Fund's financial statements. In September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Fund's financial statement disclosures. In addition, in March 2008, the Financial Accounting Standards board ("FASB") issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the Fund's derivative and hedging activities. Management is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures. 26 THE CHINA FUND, INC. OTHER INFORMATION (UNAUDITED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RESULTS OF ANNUAL STOCKHOLDER MEETING HELD ON MARCH 6, 2008 1.) Election of Directors -- The stockholders of the Fund elected Nigel Tulloch and William Kirby as Class III directors to serve for a term expiring on the date on which the annual meeting of stockholders is held in 2011.
FOR AGAINST ABSTAIN --------- ------- --------- Nigel Tulloch 7,187,567 0 1,779,213 William Kirby 8,765,368 0 201,411
2.) To approve the elimination of the Fund's fundamental investment policy requiring at least 65% of the Fund's assets to be invested in the equity securities of China companies.
FOR AGAINST ABSTAIN --------- ------- ------- 6,181,086 236,621 77,023
PRIVACY POLICY PRIVACY NOTICE The China Fund, Inc. collects nonpublic personal information about its shareholders from the following sources: [ ] Information it receives from shareholders on applications or other forms; and [ ] Information about shareholder transactions with the Fund. THE FUND'S POLICY IS TO NOT DISCLOSE NONPUBLIC PERSONAL INFORMATION ABOUT ITS SHAREHOLDERS TO NONAFFILIATED THIRD PARTIES (other than disclosures permitted by law). The Fund restricts access to nonpublic personal information about its shareholders to those agents of the Fund who need to know that information to provide products or services to shareholders. The Fund maintains physical, electronic and procedural safeguards that comply with federal standards to guard its shareholders' nonpublic personal information. 27 THE CHINA FUND, INC. OTHER INFORMATION (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROXY VOTING POLICIES AND PROCEDURES A description of the policies and procedures that are used by the Fund's investment adviser to vote proxies relating to the Fund's portfolio securities is available (1) without charge, upon request, by calling 1-888-CHN-CALL (246- 2255); and (2) as an exhibit to the Fund's annual report on Form N-CSR which is available on the website of the Securities and Exchange Commission (the "Commission") at http://www.sec.gov. Information regarding how the investment adviser votes its proxies is now available by calling the same number and on the Commission's website. The Fund has filed its report on Form N-PX covering the Fund's proxy voting record for the 12 month period ending June 30, 2007. QUARTERLY PORTFOLIO OF INVESTMENTS A Portfolio of Investments will be filed as of the end of the first and third quarter of each fiscal year on Form N-Q and will be available on the Commission's website at http://www.sec.gov. Form N-Q has been filed as of January 31, 2008 for the first quarter of this fiscal year and is available on the Commission's website at http://www.sec.gov. Additionally, the Portfolio of Investments may be reviewed and copied at the Commission's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The quarterly Portfolio of Investments will be made available with out charge, upon request, by calling 1-888-246-2255. CERTIFICATIONS The Fund's chief executive officer has certified to the New York Stock Exchange that, as of June 10, 2008, he was not aware of any violation by the Fund of applicable New York Stock Exchange corporate governance listing standards. The Fund also has included the certifications of the Fund's chief executive officer and chief financial officer required by Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002 in the Fund's Form N-CSR filed with the Securities and Exchange Commission, for the period of this report. 28 DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Fund will distribute to shareholders, at least annually, substantially all of its net investment income from dividends and interest earnings and expects to distribute any net realized capital gains annually. Pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"), adopted by the Fund, each shareholder will be deemed to have elected, unless Computershare Trust Company, N.A., the Plan Administrator, is otherwise instructed by the stockholder in writing, to have all distributions automatically reinvested by the Plan Administrator in Fund shares pursuant to the Plan. Shareholders who do not participate in the Plan will receive all distributions in cash paid by check in U.S. dollars mailed directly to the stockholder by Computershare Trust Company, N.A., as paying agent. Shareholders who do not wish to have distributions automatically reinvested should notify the Fund by contacting Computershare c/o The China Fund, Inc. at P.O. Box 43010, Providence, Rhode Island 02940-3011. Phone: 1-800-426-5523. Computershare Trust Company, N.A. and Computershare Shareholder Services, Inc. (collectively, "Computershare" or the "Plan Administrator"), acts as Plan Administrator and Service Agent. If the Directors of the Fund declare an income dividend or a capital gains distribution payable either in the Fund's Common Stock or in cash, as shareholders may have elected, non-participants in the Plan will receive cash and participants in the Plan will receive Common Stock, to be issued by the Fund. If the market price per share on the valuation date equals or exceeds net asset value per share on that date, the Fund will issue new shares to participants at net asset value or, if the net asset value is less than 95% of the market price on the valuation date, then at 95% of the market price. The valuation date will be the dividend or distribution payment date or, if that date is not a trading day on the exchange on which the Fund's shares are then listed, the next preceding trading day. If net asset value exceeds the market price of Fund shares at such time, participants in the Plan will be deemed to have elected to receive shares of stock from the Fund, valued at market price on the valuation date. If the Fund should declare a dividend or capital gains distribution payable only in cash, the Plan Administrator will, as administrator for the participants, buy Fund shares in the open market, on the New York Stock Exchange or elsewhere, with the cash in respect of such dividend or distribution, for the participant's account on, or shortly after, the payment date. Participants in the Plan have the option of making additional payments to the Plan Administrator, annually, in any amount from $100 to $3,000 for investment in the Fund's Common Stock. The Plan Administrator will use all funds received from participants (as well as any dividends and capital gains distributions received in cash) to purchase Fund shares in the open market on or about January 15 of each year. Any voluntary cash payments received more than thirty days prior to such date will be returned by the Plan Administrator, and interest will not be paid on any uninvested cash payments. To avoid unnecessary cash accumulations, and also to allow ample time for receipt and processing by the Plan Administrator, it is suggested that participants send in voluntary cash payments to be received by the Plan Administrator approximately ten days before January 15. A participant may withdraw a voluntary cash payment by written notice, if the notice is received by the Plan Agent not less than 48 hours before such payment is to be invested. The Plan Administrator maintains all stockholder accounts in the Plan and furnishes written confirmations of all transactions in the account, including information needed by shareholders for personal and tax records. Shares in the account of each Plan participant will be held by the Plan Administrator in non- certificated form in the name of the participant, and each stockholder's proxy will include those shares purchased pursuant to the Plan. 29 DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- In the case of shareholders, such as banks, brokers or nominees, which hold shares for others who are the beneficial owners, the Plan Administrator will administer the Plan on the basis of the number of shares certified from time to time by the stockholder as representing the total amount registered in the stockholder's name and held for the account of beneficial owners who are participating in the Plan. There is no charge to participants for reinvesting dividends or capital gains distributions. The Plan Administrator's fees for the handling of the reinvestment of dividends and distributions will be paid by the Fund. However, each participant's account will be charged a pro rata share of brokerage commissions incurred with respect to the Plan Administrator's open market purchases in connection with the reinvestment of dividends or capital gains distributions. A participant will also pay brokerage commissions incurred in purchases from voluntary cash payments made by the participant. Brokerage charges for purchasing small amounts of stock for individual accounts through the Plan are expected to be less than the usual brokerage charges for such transactions, because the Plan Administrator will be purchasing stock for all participants in blocks and prorating the lower commission thus attainable. The automatic reinvestment of dividends and distributions will not relieve participants of any income tax which may be payable on such dividends and distributions. Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate the Plan as applied to any voluntary cash payment made and any dividend or distribution paid subsequent to notice of the change sent to all shareholders at least 90 days before the record date for such dividend or distribution. The Plan also may be amended or terminated by the Plan Administrator by at least 90 days' written notice to all shareholders. All correspondence concerning the Plan should be directed to Computershare c/o The China Fund, Inc. at P.O. Box 43011, Providence, Rhode Island 02940-3011.Phone: 1-800-426-5523. 30 DIRECTORS AND OFFICERS (UNAUDITED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following table provides information concerning each of the Directors of the Fund. The Board of Directors is comprised of Directors who are not interested persons of the Fund, as that term is defined in Section 2(a)(19) of the 1940 Act. The Directors are divided into three classes, designated as Class I, Class II and Class III. The Directors in each such class are elected for a term of three years to succeed the Directors whose term of office expires. Each Director shall hold office until the expiration of his term and until his successor shall have been elected and qualified. The Fund Complex consists of one series.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT OFFICE DURING PAST FIVE YEARS AND NAME (AGE) AND WITH THE DIRECTORSHIPS IN PUBLICLY HELD DIRECTOR ADDRESS OF DIRECTOR FUND COMPANIES SINCE - ------------------- ----------- -------------------------------------- -------- James J. Lightburn Chairman of Chairman of the Board of the Fund; 1992 (64).............. the Board Attorney, Nomos, (2004-present); 13, Rue Alphonse and Attorney, member of Hughes Hubbard & de Neuville Director Reed (1993-2004). 75017 Paris, France Michael F. Holland Director Chairman, Holland & Company L.L.C. 1992 (63).............. (1995- present); Director, The Holland 375 Park Avenue Balanced Fund, Inc., Reaves Utility New York, New York Income Fund, Scottish Widows 10152 Investment Partnership Trust and The Taiwan Fund, Inc.; Trustee, State Street Master Funds and State Street Institutional Investment Trust. William Kirby (58).. Director Director, John K. Fairbank Center for 2007 Harvard University Chinese Studies Harvard University CGIS South (2006-present); Chairman, Harvard Building China Fund (2006-present); Harvard 1730 Cambridge University Distinguished Service Street Professor (2006-Present); Visiting Cambridge, MA Professor of Business Administration 02138 Harvard Business School (2006- Present); Dean of the Faculty of Arts and Sciences Harvard University (2002- 2006) Joe O. Rogers (59).. Director The Rogers Team LLC, organizing member 1992 2477 Foxwood Drive (July 2001-present); Manager, The J- Chapel Hill, NC Squared Team LLC (April 2003-May 27514 2004); Director, The Taiwan Fund, Inc. (1986-present). Nigel S. Tulloch Director Chief Executive, HSBC Asset Management 1992 (62).............. Bahamas Limited (1986-1992); Director, 7, Circe Circle The HSBC China Fund Limited (1992- Dalkeith 2005). WA6009 Australia Paul Hahesy (35).... Chief Compliance Manager, Foreside Foreside Compliance Compliance Services, LLC. (2005- Compliance Officer of present); Compliance Consultant, Services, LLC. the Fund Metlife (2002-2005) Two Portland Square Portland, ME 04101 Gary L. French President Senior Vice President, State Street (56).............. Bank and Trust Company (2002 - 2 Avenue de present); Managing Director, Deutsche Lafayette Asset Management, Inc. and Zurich Boston, MA 02111 Scudder Investments (acquired by Deutsche Bank in 2002) (2001-2002).
31
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT OFFICE DURING PAST FIVE YEARS AND NAME (AGE) AND WITH THE DIRECTORSHIPS IN PUBLICLY HELD DIRECTOR ADDRESS OF DIRECTOR FUND COMPANIES SINCE - ------------------- ----------- -------------------------------------- -------- William C. Cox Treasurer Vice President, State Street Bank and (41).............. Trust Company. 2 Avenue de Lafayette Boston, MA 02111 Mary Moran Zeven Secretary Senior Vice President and Senior (46).............. Counsel, State Street Bank and Trust 2 Avenue de Company. Lafayette Boston, MA 02111
Alan Tremain (70), Placido Mer 5200 North Flagler #25, West Palm Beach Florida 33408, served as a Director from 1992 until his retirement on March 6, 2008. 32 THE CHINA FUND, INC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES ADDRESS The China Fund, Inc. c/o State Street Bank and Trust Company 2 Avenue de Lafayette, 4th Floor P.O. Box 5049 Boston, MA 02206-5049 1-888-CHN-CALL (246-2255) DIRECTORS AND OFFICERS James J. Lightburn, Chairman of the Board and Director Michael F. Holland, Director William Kirby, Director Joe O. Rogers, Director Nigel S. Tulloch, Director Paul Hahesy, Chief Compliance Officer of the Fund Gary L. French, President William C. Cox, Treasurer Mary Moran Zeven, Secretary INVESTMENT MANAGER Martin Currie Inc. SHAREHOLDER SERVICING AGENT The Altman Group ADMINISTRATOR AND CUSTODIAN State Street Bank and Trust Company TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR Computershare Trust Company, N.A. INDEPENDENT AUDITORS Deloitte & Touche, LLP LEGAL COUNSEL Clifford Chance US LLP ITEM 2. CODE OF ETHICS. Not required for this filing. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not required for this filing. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not required for this filing. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not required for this filing. ITEM 6. SCHEDULE OF INVESTMENTS. Schedule of Investments is included as part of Item 1 of the Form N-CSR. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END INVESTMENT COMPANIES. Not required for this filing. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's Board of Directors during the period covered by this Form N-CSR filing. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of this Form N-CSR based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the 1934 Act (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d))) that occurred during the registrant's second fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 3 ITEM 12. EXHIBITS. (a)(1) Not required for this filing. (a)(2) The certifications required by Rule 30a-2 of the Investment Company Act of 1940, as amended (the "1940 Act") are attached hereto. (a)(3) Not required for this filing. (b) The certifications required by Rule 30a-2(b) of the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE CHINA FUND, INC. By: /s/ Gary L. French Gary L. French President of The China Fund, Inc. Date: July 3, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Gary L. French Gary L. French President of The China Fund, Inc. Date: July 3, 2008 By: /s/ William C. Coz William C. Cox Treasurer of The China Fund, Inc. Date: July 3, 2008 5 EX-99.12(A)(2) 2 b70282a1exv99w12xayx2y.txt CERTIFICATION OF PEO & PFO EXHIBIT 12(a)(2) I, Gary L. French, President of The China Fund, Inc., certify that: 1. I have reviewed this report on Form N-CSR of The China Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and 6 (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 3, 2008 By: /s/ Gary L. French President (principal executive officer) of The China Fund, Inc. 7 I, William C. Cox, Treasurer of The China Fund, Inc., certify that: 1. I have reviewed this report on Form N-CSR of The China Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting(as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 8 Date: July 3, 2008 By: /s/ William C. Cox William C. Cox Treasurer (principal financial officer) of The China Fund, Inc. 9 EX-99.12(B) 3 b70282a1exv99w12xby.txt SECTION 906 CERTIFICATION EXHIBIT 12(b) Gary L. French, Chief Executive Officer, and William C. Cox, Chief Financial Officer of The China Fund, Inc. (the "Fund"), each certify that: 1. This Form N-CSR filing for the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. By: /s/ Gary L. French Gary L. French Chief Executive Officer of The China Fund, Inc. Date: July 3, 2008 By: /s/ William C. Cox William C. Cox Chief Financial Officer of the The China Fund, Inc. Date: July 3, 2008 10 -----END PRIVACY-ENHANCED MESSAGE-----