THE CHINA FUND, INC. (CHN)

The Martin Currie
Shanghai team

IN BRIEF

Net asset value per share		US$	27.17
Market price		US$	25.25
Premium/(discount)			(7.07	%)
Fund size		US$	618.9m

At 31 October 2009				US$ returns

		China Fund NAV				MSCI Golden Dragon*
		%				%
One month			5.3				2.3
Year to date			56.2				58.7
One year			70.7				67.3
Three years %pa			21.5				9.0

Past performance is not a guide to future returns.

MANAGER’S COMMENTARY

The Chinese markets bounced forward in choppy trading. In the blue corner we have the delights of easy money (loan growth in September +34% year on year, M2 +29% year on year) and improving economic news (third-quarter GDP up 8.9%, September’s electric power consumption up 10.2%) In the red corner we have fears of coming inflation and the heavy supply of new equity (though all 28 stocks on the new ChiNext market more than doubled on the first day of trading!). After the strong rally, it would be no surprise for markets to take umbrage at the gradual normalization of policy, but we see the first encouraging signs of a pick-up in private investment (in September, private investment grew faster than public for the first time in a year). Together with robust consumption, this should help reduce the impact, even as the outlook for exports remains grim (September’s exports were down ‘only’ 15.2% year on year). We anticipate that inflation will shortly turn positive, but is unlikely to run away, especially as this development will trigger a resumption of the renminbi’s appreciation.

We remain positive on the implications of the cross-strait rapprochement for Taiwan, although the market itself suffered a sharp sell-off at the month-end. Money growth (M1B +23.5%, a five-year high) tells a story of increasing domestic interest in the market.

INVESTMENT STRATEGY

The fund is 93% invested with holdings in 61 companies. The unlisted portion of the fund is 15%. Additionally, 33% is invested in Hong Kong-listed companies, 20% in Taiwan, 10% in A-shares and the balance in other markets. These last, often ‘orphaned’ stocks, in terms of broker coverage, offer particular value. Two such stocks, China Medical Systems, a well-managed drug distribution business listed on the UK’s AIM market, and Financial One, a leasing company listed in Singapore, have both decided to seek listings in Hong Kong (to the benefit of their share prices).

We made almost no changes to the portfolio in October, our only action being to buy back the now undervalued Anhui Expressway. Our performance was helped by our cornerstone investment in drug distributor Sinopharm.

We include brief notes on the fund’s unlisted holdings below.

Ugent convertible bonds

This is a recent investment in a bond, convertible into Ugent equity, to provide working capital for expansion of its printer cartridge recycling business. Since purchase, results have been behind expectation due to funding issues and a less than optimal sales mix. As a result the conversion rate of the bond will likely be adjusted towards the maximum of 49% of the company. In the meantime Jackin (the parent company) has been re-rated substantially on negotiations with China Gold about the injection of gold mines. The new owners are likely to distribute the Ugent shares in specie next year. A ChiNext listing now seems the most likely exit route.

China Silicon

This investment was made almost two years ago. Delays to the furnaces, combined with the economic environment, have meant that this investment is behind schedule. The combination of the three smelters completing and economies improving in 2010 underpins a significant increase in our profit expectations. In addition there is the possibility of corporate interest.

Hand Enterprise Solutions

This company’s business (enterprise resource planning software) is picking up in line with the overall economic recovery. Revenues for 2009 have reached Rmb166 million, which is much better than expected. Net profit has reached Rmb15.9 million, around twice the budgeted level of Rmb8.6 million. The fourth quarter is traditionally strong and so the company is confident of achieving Rmb30 million net profit in 2009, which is close to last year’s. The company has a net cash position of Rmb80 million. An IPO in the next two years remains the most likely exit strategy.

Highlight

This investment was made two years ago. Because of postponed orders and manufacturing issues, results have been behind expectations. Consequently, we have exercised the put option and have negotiated the return of all of the fund’s capital (along with interest) in three tranches, with the support of the Taiwan-listed parent. The first instalment was paid on 30 September with capital of $1.5 million and interest of $1,022,942; we returned 841,723 shares back to the company. Now we own 2,525,170 shares and the remaining $4.5 million (plus $0.2 million of interest) will be paid back in two tranches.

Qingdao Bright Moon

This investment in the world’s largest seaweed processor was made 18 months ago. After last year’s inventory issues, performance in the first nine months of 2009 has been much better than expected, with sales reaching Rmb398.9 million, close to the same period of last year’s levels, and net profit of Rmb9.2 million, higher than forecast due to the reduction in high-priced inventory and a recovery in demand. The performance in September was particularly impressive. An A-share listing before the end of 2010 remains the most likely exit route. Should operating performance deteriorate from here, we have a put option to exercise.

Queenbury (Huiyin)

This investment in Queenbury, a rural distributor of electrical appliances, was made 18 months ago. Results have initially been below budget, largely due to the weakness in consumption caused by the financial crisis. But 2009 forecasts now look achievable. An IPO before March 2010 remains the most likely exit route, and this process has begun.

Chris Ruffle, Martin Currie Inc*

31 OCTOBER 2009

FUND DETAILS

Market cap				US$575.24m
Shares outstanding				22,781,762
Exchange listed				NYSE
Listing date				July 10, 1992
Listed and direct investment manager				Martin Currie Inc

SECTOR ALLOCATION

		The China				MSCI Golden
		Fund, Inc				Dragon
Healthcare			21.5	%			0.1	%
Consumer discretionary			18.8	%			5.0	%
Consumer staples			16.3	%			2.3	%
Financials			9.7	%			37.7	%
Industrials			9.1	%			7.5	%
Information technology			7.4	%			20.5	%
Energy			4.4	%			9.0	%
Materials			3.0	%			6.3	%
Utilities			1.9	%			3.7	%
Telecommunications			1.3	%			7.9	%
Other assets & liabilities			6.6	%			—

ASSET ALLOCATION

PERFORMANCE				(US$ RETURNS)

		NAV				Market price
		%				%
One month			5.3				4.6
Year to date			56.2				52.7
Three years %pa			21.5				19.8

Past performance is not a guide to future returns.

Three year returns are annualized.

15 LARGEST HOLDINGS (47.8%)

Queenbury Investment (Huiyan)		Consumer discretionary		7.6%
Sinopharm		Healthcare		4.5%
Shandong Weigao Group		Healthcare		4.5%
Wumart Stores		Consumer staples		4.1%
Ugent Holdings		Industrials		3.7%
China Medical System Holdings		Healthcare		3.7%
Far Eastern Department Stores		Consumer discretionary		3.2%
China Shineway Pharmaceutical		Healthcare		2.6%
Ruentex Development		Financials		2.3%
Fushan International Energy		Energy		2.0%
Ports Design		Consumer discretionary		2.0%
Hsu Fu Chi International		Consumer staples		2.0%
Chaoda Modern Agriculture		Consumer staples		1.9%
China Fishery Group		Consumer staples		1.9%
Wuxi PharmaTech Cayman		Healthcare		1.8%

DIRECT INVESTMENTS (15.0%)

Queenbury Investment (Huiyan)		Consumer discretionary		7.6%
Ugent Holdings		Industrials		3.7%
HAND Enterprise Solutions		Information technology		1.3%
Qingdao Bright Moon		Industrials		1.1%
Highlight Tech		Industrials		0.7%
China Silicon (Series A Preferred)		Information technology		0.6%
China Silicon (Common Stock)		Information technology		0.0%
China Silicon (Warrants)		Information technology		0.0%
TECO Optronics		Information technology		0.0%

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

		One				Three				Calendar				One				Three				Five				Since
		month				months				year to date				year				years				years				launch
		%				%				%				%				% pa				% pa				% pa
The China Fund, Inc.			5.3				9.5				56.2				70.7				21.5				21.6				11.7
MSCI Golden Dragon			2.3				4.0				58.7				67.3				9.0				13.8				10.3
Hang Seng Chinese Enterprise			7.7				5.3				61.8				93.2				19.7				23.3				22.9
Shanghai Stock Exchange 180			8.8				(13.6	)			77.5				92.4				35.1				28.9				n/a

Past performance is not a guide to future returns.

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

PERFORMANCE IN PERSPECTIVE

Past performance is not a guide to future returns.

Source: Martin Currie Inc as at 31 October 2009.

THE CHINA FUND INC. PREMIUM/DISCOUNT

Past performance is not a guide to future returns.

Source: Martin Currie Inc as at 31 October 2009.

10 YEAR DIVIDEND HISTORY CHART

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

Past performance is not a guide to future returns.

Source: State Street Bank and Trust Company.

31 OCTOBER 2009

Sector		Company (BBG ticker)				Price				Holding				Value US$				% of portfolio
Hong Kong																			16.3	%
China Shineway Pharmaceutical		2877 HK				HK$	10.9				11,184,000			$	15,844,691				2.6	%
Fushan International Energy		639 HK				HK$	6.0				16,044,000			$	12,462,163				2.0	%
Ports Design		589 HK				HK$	21.2				4,549,500			$	12,415,332				2.0	%
Chaoda Modern Agriculture		682 HK				HK$	6.1				15,327,357			$	11,984,618				1.9	%
Xinao Gas		2688 HK				HK$	16.7				5,084,000			$	10,981,086				1.8	%
Intime Department Store Group		1833 HK				HK$	5.5				12,568,629			$	8,886,950				1.5	%
Natural Beauty Bio-Technology		157 HK				HK$	1.3				48,680,000			$	8,291,036				1.3	%
Golden Meditech		801 HK				HK$	1.4				35,040,000			$	6,374,814				1.0	%
Shangri-La Asia		69 HK				HK$	15.1				3,061,555			$	5,933,299				1.0	%
TPV Technology		903 HK				HK$	5.2				8,854,000			$	5,803,467				0.9	%
Yorkey Optical International		2788 HK				HK$	1.7				7,758,926			$	1,741,948				0.3	%
FU JI Food & Catering Services		1175 HK				HK$	0				5,462,000				—				0.0	%
Singapore																			5.3	%
Hsu Fu Chi International		HFCI SP				SG$	1.8				9,484,000			$	12,206,357				2.0	%
China Fishery Group		CFG SP				SG$	1.2				13,255,000			$	11,562,761				1.9	%
Financial One Corp		FIN SP				SG$	0.6				12,030,000			$	4,946,016				0.8	%
CDW		CDW SP				SG$	0.1				54,708,000			$	2,542,648				0.4	%
China Milk Products Group		CMILK SP				SG$	0.5				4,923,000			$	1,584,033				0.2	%
Hong Kong ‘H’ shares																			16.9	%
Sinopharm		297 HK				HK$	27.8				7,786,000			$	27,918,188				4.5	%
Shandong Weigao Group		8199 HK				HK$	27.6				7,808,000			$	27,553,795				4.5	%
Wumart Stores		8277 HK				HK$	13.3				14,888,000			$	25,472,066				4.1	%
ZTE Corp		763 HK				HK$	43.7				1,461,926			$	8,261,973				1.3	%
China Pharmaceutical Group		1093 HK				HK$	4.4				12,918,000			$	7,333,854				1.2	%
Zijin Mining		2899 HK				HK$	7.7				7,214,000			$	7,139,303				1.2	%
Anhui Expressway		995 HK				HK$	4.9				1,163,300			$	733,981				0.1	%
Taiwan																			19.8	%
Far Eastern Department Stores		2903 TT				NT$	34.1				19,066,931			$	19,962,150				3.2	%
Ruentex Development		9945 TT				NT$	37.1				12,694,000			$	14,460,926				2.3	%
China Metal Products		1532 TT				NT$	38.6				9,200,278			$	10,919,372				1.8	%
Uni-President Enterprises		1216 TT				NT$	36.8				9,112,638			$	10,311,013				1.7	%
HTC Corp		2498 TT				NT$	330.0				891,900			$	9,049,811				1.5	%
WPG Holdings		3702 TT				NT$	45.5				6,320,000			$	8,841,743				1.4	%
KGI Securities		6008 TT				NT$	15.3				16,984,780			$	7,990,257				1.3	%
FamilyMart		5903 TT				NT$	56.0				4,501,652			$	7,751,207				1.2	%
Lien Hwa Industrial		1229 TT				NT$	15.2				16,476,881			$	7,675,330				1.2	%
Taiwan Secom		9917 TT				NT$	50.1				4,738,000			$	7,298,644				1.2	%
Yuanta Financial		2885 TT				NT$	22.0				10,520,593			$	7,116,596				1.2	%
Fubon Financial Holdings		2881 TT				NT$	36.9				4,948,000			$	5,613,910				0.9	%
Synnex Technology		2347 TT				NT$	62.6				2,809,240			$	5,407,202				0.9	%
United Kingdom																			3.6	%
China Medical System Holdings		CMSH LN				£	3.8				3,623,188			$	22,694,682				3.6	%
United States																			6.1	%
Wuxi PharmaTech Cayman		WX US				US$	12.8				883,490			$	11,335,177				1.8	%
Far East Energy		FEEC US				US$	0.5				14,565,477			$	6,700,119				1.1	%
Sina Corp		SINA US				US$	37.4				162,700			$	6,083,353				1.0	%
Mindray Medical International		MR US				US$	30.7				191,700			$	5,890,941				1.0	%
New Oriental Education		EDU US				US$	69.8				73,400			$	5,126,256				0.8	%
The9		CMED US				US$	7.5				358,900			$	2,691,750				0.4	%
Equity linked securities (‘A’ shares)																			10.4	%
Shenzhen Agricultural						US$	1.6				6,800,000			$	10,686,778				1.7	%
CITIC Securities						US$	4.0				2,260,600			$	8,949,690				1.5	%
China Yangtze Power						US$	1.9				4,169,077			$	7,980,935				1.3	%
Shanghai Yuyuan Tourist Board						US$	2.9				238,502,000			$	6,818,834				1.1	%
Suning Appliance						US$	2.4				2,874,013			$	6,805,663				1.1	%
Daqin Railway						US$	1.4				3,807,000			$	5,436,579				0.9	%
Dalian Zhangzidao Fishery						US$	3.9				1,260,565			$	4,962,844				0.8	%
Wuliangye Yibin						US$	3.3				1,403,507			$	4,610,521				0.7	%
Zhejiang Guyuelongshan						US$	1.2				3,658,900			$	4,453,383				0.7	%
Shanghai International Airport						US$	2.1				1,816,700			$	3,769,652				0.6	%

Sector		Company (BBG ticker)				Price				Holding				Value US$				% of portfolio
Direct																			15.0	%
Queenbury Investment (Huiyan)					US$	104686					450			$	47,108,700				7.6	%
Ugent Holdings					HK$	100					177,000,000			$	22,837,973				3.7	%
HAND Enterprise Solutions					US$	16.4					500,000			$	8,200,000				1.3	%
Qingdao Bright Moon					US$	0.2					31,827,172			$	6,842,842				1.1	%
Highlight Tech					US$	1.8					2,525,170			$	4,499,999				0.7	%
China Silicon (Series A Preferred)					US$	133					27,418			$	3,646,594				0.6	%
China Silicon (Common Stock)							—				1,171,572				—				—
China Silicon (Warrants)							—				685,450				—				—
teco Optronics							—				1,861,710				—				—
Other assets & liabilities														$	40,370,383				6.6	%

INDEX DESCRIPTIONS

MSCI Golden Dragon Index

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

Hang Seng China Enterprise Index

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

Shanghai Stock Exchange 180 Index

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

OBJECTIVE

The investment objective of the Fund is to achieve long term capital appreciation. The Fund seeks to achieve its objective through investment in the equity securities of companies and other entities with significant assets, investments, production activities, trading or other business interests in China or which derive a significant part of their revenue from China.

The Board of Directors of the Fund has adopted an operating policy of the Fund, effective 30 June 2001, that the Fund will invest at least 80% of its assets in China companies. For this purpose, ‘China companies’ are (i) companies for which the principal securities trading market is in China; (ii) companies for which the principal securities trading market is outside of China or in companies organized outside of China, that in both cases derive at least 50% of their revenues from goods or services sold or produced, or have a least 50% of their assets in China; or (iii) companies organized in China. Under the policy, China will mean the People’s Republic of China, including Hong Kong, and Taiwan. The Fund will provide its stockholders with at least 60 days’ prior notice of any change to the policy described above.

The Fund is subject to the Investment Company Act of 1940 which limits the means in which it can access the ‘A’ share market. The Fund will continue to seek the most efficient way in which to increase its ‘A’ share exposure ensuring ongoing compliance with its legal and regulatory obligations.

CONTACTS

The China Fund, Inc.
c/o State Street Bank and Trust Company
2 Avenue de Lafayette
PO Box 5049
Boston, MA 02206-5049
Tel: (1) 888 CHN-CALL (246 2255)
www.chinafundinc.com

Important information: This document is issued and approved by Martin Currie Inc (MC Inc), as investment adviser of The China Fund Inc (the Fund). MC Inc is authorised and regulated by the Financial Services Authority (FSA) and incorporated under limited liability in New York, USA. Registered in Scotland (No BR2575), registered address Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2ES. Information herein is believed to be reliable but has not been verified by MC Inc. MC Inc makes no representation or warranty and does not accept any responsibility in relation to such information or for opinion or conclusion which the reader may draw from the newsletter.

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

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

Investors are advised that they will not generally benefit from the rules and regulations of the United Kingdom Financial Services and Markets Act 2000 and the FSA for the protection of investors, nor benefit from the United Kingdom Financial Services Compensation Scheme, nor have access to the Financial Services Ombudsman in the event of a dispute. Investors will also have no rights of cancellation under the FSA’s Conduct of Business Sourcebook of the United Kingdom.

This newsletter does not constitute an offer of shares. MC Inc, its ultimate and intermediate holding companies, subsidiaries, affiliates, clients, directors or staff may, at any time, have a position in the market referred to herein, and may buy or sell securities, currencies, or any other financial instruments in such markets. The information or opinion expressed in this newsletter should not be construed to be a recommendation to buy or sell the securities, commodities, currencies or financial instruments referred to herein.

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

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

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

®		The companies quoted on Greater Chinese stock exchanges are exposed to the risks of political, social and religious instability, expropriation of assets or nationalisation, rapid rates of inflation, high interest rates, currency depreciation and fluctuations and changes in taxation, which may affect income and the value of investments.
®		At present, the securities market and the regulatory framework for the securities industry in China is at an early stage of development. The China Securities Regulatory Commission (CSRC) is responsible for supervising the national securities markets and producing relevant regulations. The Investment Regulations, under which the Fund invests in the People’s Republic of China (PRC) and which regulate repatriation and currency conversion, are new. The Investment Regulations give CSRC and State Administration of Foreign Exchange (SAFE) wide discretions and there is no precedent or certainty as to how these discretions might be exercised, either now or in the future. The Fund may, from time to time, obtain access to the securities markets in China via Access Products. Such products carry additional risk and may be less liquid than the underlying securities which they represent.
®		During the past 15 years, the PRC government has been reforming the economic and political systems of the PRC, and these reforms are expected to continue, as evidenced by the recently announced changes. The Fund’s operations and financial results could be adversely affected by adjustments in the PRC’s state plans, political, economic and social conditions, changes in the policies of the PRC government such as changes in laws and regulations (or the interpretation thereof), measures which may be introduced to control inflation, changes in the rate or method of taxation, imposition of additional restrictions on currency conversion and the imposition of additional import restrictions.
®		PRC’s disclosure and regulatory standards are in many respects less stringent than standards in certain Organisation for Economic Co-operation and Development (OECD) countries, and there may be less publicly available or less reliable information about PRC companies than is regularly published by or about companies from OECD countries.
®		The Shanghai Stock Exchange and Shenzhen Stock Exchange have lower trading volumes than most OECD exchanges and the market capitalisations of listed companies are small compared to those on more developed exchanges in developed markets. The listed equity securities of many companies in the PRC are accordingly materially less liquid, subject to greater dealing spreads and experience materially greater volatility than those of OECD countries. These factors could negatively affect the Fund’s NAV.
®		The Fund invests primarily in securities denominated in other currencies but its NAV will be quoted in US dollars. Accordingly, a change in the value of such securities against US dollars will result in a corresponding change in the US dollar NAV.
®		The marketability of quoted shares may be limited due to foreign investment restrictions, wide dealing spreads, exchange controls, foreign ownership restrictions, the restricted opening of stock exchanges and a narrow range of investors. Trading volume may be lower than on more developed stockmarkets, and equities are less liquid. Volatility of prices can also be greater than in more developed stockmarkets. The infrastructure for clearing, settlement and registration on the primary and secondary markets may be underdeveloped. Under certain circumstances, there may be delays in settling transactions in some of the markets.

Martin Currie Inc, registered in Scotland (no BR2575)

Registered office: Saltire Court, 20 Castle Terrace, Edinburgh EH11 2ES Tel: 44 (0) 131 229 5252 Fax: 44 (0) 131 228 5959 www.martincurrie.com/china

North American office: 1350 Avenue of the Americas, Suite 3010, New York, NY 10019, USA Tel: (1) 212 258 1900 Fax: (1) 212 258 1919

Authorised and registered by the Financial Services Authority and incorporated with limited liability in New York, USA.

Please note: calls to the above numbers may be recorded.