Monthly Insight
NOV 30, 2012	The China Fund, Inc. (CHN)

 

Investment 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 Fund has an operating policy 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 at 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 this policy.

Performance Overview

 

 

Performance History		1 month				3 months				YTD				1 Year				3 Years (p.a.)				5 Years (p.a.)				10 Years (p.a.)				Since Inception
NAV (%)			1.92				5.49				7.40				6.62				2.78				0.64				18.27				10.57
Market price (%)			3.34				5.96				10.09				2.43				1.89				1.56				18.59				9.58
Benchmark (%)			3.66				12.31				19.36				22.35				4.53				-1.78				12.21				N/A

 

 

Performance History		2011				2010				2009				2008				2007				2006				2005				2004
NAV (%)			-24.37				27.25				72.82				-46.95				86.20				57.10				6.09				3.80
Market price (%)			-27.51				23.60				72.19				-40.65				50.24				65.67				-21.51				-9.95
Benchmark (%)			-18.36				13.60				67.12				-49.37				37.97				39.50				10.27				14.27

 

 

Source : State Street Bank and Trust Company. Source for index data: MSCI as at November 30, 2012.

 

Portfolio Analysis

 

 

Source: State Street Bank and Trust Company as at October 31,2012.

* China includes A-shares (3.9%), A-share equity linked securities (8.2%), B-shares (11.9%) and H-shares (15.7%).

 

 

 

The China Fund, Inc (CHN)

 

Portfolio Analysis (continued)

 

Top 10 Holdings

Sector

%

Direct Investments

Sector

%

TAIWAN SEMICONDUCTOR MANUFACTURING CO., LTD.

I.T.

6.2

GOLDEN MEDITECH HOLDINGS, LTD. 15.0%, 5/16/13

OTHERS

1.4

INDUSTRIAL & COMMERCIAL BANK OF CHINA

FINANCIALS

5.1

GOLDEN MEDITECH HOLDINGS, LTD. 15.0%, 11/16/13

OTHERS

1.4

SUN HUNG KAI PROPERTIES, LTD.

FINANCIALS

4.0

DIGITAL CHINA HOLDINGS, LTD.

I.T.

4.0

HAND ENTERPRISE SOLUTIONS CO., LTD.

I.T.

3.9

CHINA MOBILE, LTD.

TELECOM

3.7

CHINA MEDICAL SYSTEM HOLDINGS, LTD.

HEALTH CARE

3.5

CHINA EVERBRIGHT INTERNATIONAL, LTD.

INDUSTRIALS

3.2

TAIWAN FAMILYMART CO., LTD.

CON. DISC.

3.1

TRACKER FUND OF HONG KONG

OTHERS

3.1

Total

39.8

Total

2.8

 

Source : State Street Bank and Trust Company as at November 30, 2012.

 

Fund Details

 

 

 

NAV	$24.97
Market price	$22.58
Premium/Discount	-9.57%
Market cap	US$360.0m
Shares outstanding	15,945,435
Exchange listed	NYSE
Listing date	July 10, 1992
Benchmark	MSCI Golden Dragon Index (Total Return)
Fund Manager	Christina Chung
Listed and direct investment manager	RCM Asia Pacific Limited

 

Source : State Street Bank and Trust Company as at November 30, 2012.

 

Dividend History (10 years)

 

Declaration date		Ex-dividend date		Record date		Payable date		Dividend/Share				Income				Long-term Capital				Short-term Capital
8 Dec 2011		21 Dec 2011		23 Dec 2011		29 Dec 2011			2.99640				0.17420				2.82220				0.00000
8 Dec 2010		21 Dec 2010		24 Dec 2010		29 Dec 2010			2.27420				0.37460				1.89960				0.00000
9 Dec 2009		22 Dec 2009		24 Dec 2009		29 Dec 2009			0.25570				0.25570				0.00000				0.00000
8 Dec 2008		22 Dec 2008		24 Dec 2008		23 Jan 2009			5.81740				0.48130				5.33610				0.00000
7 Dec 2007		19 Dec 2007		21 Dec 2007		25 Jan 2008			12.12000				0.28000				9.00000				2.84000
8 Dec 2006		19 Dec 2006		21 Dec 2006		29 Dec 2006			4.01170				0.29960				2.73090				0.98120
9 Dec 2005		19 Dec 2005		21 Dec 2005		29 Dec 2005			2.51190				0.21720				2.29470				0.00000
13 Dec 2004		20 Dec 2004		22 Dec 2004		7 Jan 2005			3.57010				0.19630				3.26640				0.10740
19 Dec 2003		29 Dec 2003		31 Dec 2003		15 Jan 2004			1.78000				0.07000				0.67000				1.04000
17 Dec 2002		23 Dec 2002		26 Dec 2002		15 Jan 2003			0.21437				0.06397				0.00069				0.14971

 

Source : State Street Bank and Trust Company

  

 

The China Fund, Inc (CHN)

 

The China Fund Inc.  NAV Performance of USD $10,000 since inception (with dividends reinvested at NAV price)

 

 

Past performance is not a guide to future returns.

Source : State Street Bank and Trust Company as at November 30, 2012.

 

The China Fund, Inc. Premium/Discount

 

 

Past performance is not a guide to future returns.

Source : State Street Bank and Trust Company as at November 30, 2012.

 

 

The China Fund, Inc (CHN)

 

Manager’s Commentary

 

Market review

 

In November, the Hong Kong equity market remained volatile but ended the month at a higher level. The market was once again affected by news flow in the United States on budget concerns and weak economic data during the month. The Hong Kong government imposed a new stamp duty on corporate and non-permanent-resident buyers of homes in Hong Kong in late October. This adversely impacted share prices of property stocks only for a short period amidst fund inflows into the Hong Kong equity market. Although China's economic data continued to show signs of stabilization, the H-shares market was a laggard, dragged down by the weak A-shares market performance as domestic investment sentiment remained bearish.

 

Fund review

 

In November, the Fund underperformed relative to the benchmark mainly due to stock selection in the information technology and consumer staples sectors.

 

The key detractors for the month were the white liquor stocks. Their share prices plummeted due to claims that the liquor contained an excessive amount of harmful plasticizer in November, and similar allegation on Moutai's liquor in early December. Moutai responded to deny the claim with the testing reports showing their liquor meeting the national standards. Despite the negative news, the earnings visibility of this high end liquor maker remains high and the valuation is attractive at current level.

 

In November, the Fund exercised its put on the shares of China Bright and received payment of its original investment in China Bright as partial payment of the put price. The balance of the payment is due in two installments in 2013, together with interest at 15%, and is secured by shares in China Bright. In our view, the payment of the installments will likely be dependent on the ability of China Bright's parent (Golden Meditech) to complete an initial public offering for China Bright or another liquidity event.

 

Outlook

 

Recent economic indicators continue to suggest that the China economy is stabilizing. Industrial profits have also shown signs of improvement of late. Meanwhile, the conclusion of the 18th Party Congress has eased political concerns as well as triggered expectations of reform measures to be implemented by the new government after March 2013. Against this backdrop, we believe that increased liquidity will favor China equities and hence there is room for China equity market valuation to recover following a period of sharp de-rating.

 

Source : RCM Asia Pacific Limited as at November 30, 2012.

  

 

The China Fund, Inc (CHN)

 

Portfolio Holdings

 

																	Percentage of
CUSIP		Security Description			Cost Base				Base MV				Shares				Net Assets
688910900		Taiwan Semiconductor Manufacturing Co., Ltd.			19,343,474				24,819,377				7,306,000				6.2
B1G1QD902		Industrial & Commercial Bank of China			20,739,449				20,129,374				29,829,000				5.1
685992000		Sun Hung Kai Properties, Ltd.			14,524,567				15,992,207				1,092,000				4.0
635186901		Digital China Holdings, Ltd.			17,914,700				15,984,039				9,603,000				4.0
B3VN92906		HAND Enterprise Solutions Co., Ltd.			1,793,494				15,508,195				6,369,715				3.9
607355906		China Mobile, Ltd.			13,583,976				14,577,163				1,278,000				3.7
B6WY99909		China Medical System Holdings, Ltd.			1,487,481				13,850,568				20,330,300				3.5
663094902		China Everbright International, Ltd.			12,183,629				12,692,193				26,730,000				3.2
644094906		Taiwan FamilyMart Co., Ltd.			2,628,424				12,363,550				2,529,652				3.1
618855902		Tracker Fund of Hong Kong			11,917,007				12,321,955				4,292,000				3.1
633393905		Enn Energy Holdings, Ltd.			744,584				12,068,412				2,680,000				3.0
B00G0S903		CNOOC, Ltd.			11,883,847				11,809,513				5,547,000				3.0
B2R2ZC908		CSR Corp., Ltd.			9,248,041				10,320,910				12,212,000				2.6
670039007		Uni-President Enterprises Corp.			1,609,768				9,452,374				5,291,508				2.4
619376908		China Resources Land, Ltd.			5,946,868				9,221,602				3,436,000				2.3
99ZMCS903		Kweichow Moutai Co., Ltd.			8,981,307				8,643,177				251,649				2.2
674842901		Ruentex Development Co., Ltd.			3,423,335				8,405,777				4,416,301				2.1
629099904		WT Microelectronics Co., Ltd.			8,149,274				8,266,554				6,746,530				2.1
913BMZ902		Ping An Insurance (Group) Company of China, Ltd.			9,494,980				8,225,240				1,418,047				2.1
634007900		Kunlun Energy Co., Ltd.			6,300,267				7,952,966				3,906,000				2.0
B01CT3905		Tencent Holdings, Ltd.			6,391,568				7,627,217				234,200				1.9
B1YMYT902		Hiwin Technologies Corp.			9,693,067				6,911,467				942,750				1.7
17313A533		Gree Electric Appliances, Inc.			6,453,442				6,861,454				1,838,546				1.7
637248907		MediaTek Inc.			6,194,126				6,358,832				559,000				1.6
34415V109		Focus Media Holding, Ltd.			5,976,531				6,083,115				250,437				1.5
17307D352		Wuliangye Yibin Co., Ltd.			3,118,592				6,018,238				1,403,507				1.5
643648900		Shenzhen International Holdings, Ltd.			4,383,169				6,003,368				71,580,000				1.5
626073902		Delta Electronics, Inc.			4,550,608				5,780,960				1,615,000				1.5
671815900		Qingling Motors Co., Ltd.			7,603,282				5,768,250				24,836,000				1.5
B3ZVDV905		Sinopharm Group Co., Ltd.			3,844,680				5,697,208				1,843,600				1.4
986PLF007		Golden Meditech Holdings, Ltd. 15.0%, 5/16/13			5,557,209				5,558,356				58,222,500^				1.4
986PLG005		Golden Meditech Holdings, Ltd. 15.0%, 11/16/13			5,557,209				5,558,356				58,222,500^				1.4
B1JNK8908		China Coal Energy Co., Ltd.			6,860,736				5,336,898				5,296,000				1.3
959GRNII9		Taiwan Life Insurance Co., Ltd., 4.0%, 12/28/14			6,178,274				5,252,246				200,000,000				1.3
651795908		Natural Beauty Bio-Technology, Ltd.			4,906,910				4,924,808				47,710,000				1.2
620267906		Advantech Co., Ltd.			4,104,778				4,795,002				1,284,000				1.2
600245005		ASM Pacific Technology, Ltd.			5,467,670				4,793,174				410,700				1.2
644806002		Hutchison Whampoa, Ltd.			4,088,916				4,652,658				453,000				1.2
626735906		Hong Kong Exchanges and Clearing, Ltd.			4,018,117				4,096,934				257,100				1.0
665157905		Comba Telecom Systems Holdings, Ltd.			7,565,579				3,944,984				10,958,500				1.0
604364901		Yantai Changyu Pioneer Wine Co., Ltd.			5,808,831				3,465,545				688,856				0.9
643055908		Golden Meditech Holdings, Ltd.			4,555,715				3,390,902				35,040,000				0.9
B633D9904		Zhongsheng Group Holdings, Ltd.			3,466,065				3,290,512				2,662,000				0.8
B1CKXF901		Zhengzhou Yutong Bus Co., Ltd.			3,096,799				2,729,826				825,469				0.7
B4PTR3906		Fook Woo Group Holdings, Ltd.			7,974,083				2,237,388				25,314,000				0.5
B05LP6908		CDW Holding, Ltd.			772,321				2,065,630				26,269,000				0.5
631349909		Chaoda Modern Agriculture (Holdings), Ltd.			9,287,936				0				26,651,357				0.0
B04W2V905		FU JI Food & Catering Services			4,246,696				0				5,462,000				0.0

 

Source : State Street Bank and Trust Company as at November 30, 2012.

 

 

The China Fund, Inc (CHN)

 

The information contained herein has been obtained from sources believed to be reliable but RCM and its affiliates do not warrant the information to be accurate, complete or reliable. The opinions expressed herein are subject to change at any time and without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Investors should consider the investment objectives, risks, charges and expenses of any mutual fund carefully before investing. This and other information is contained in the fund’s annual and semiannual reports, proxy statement and other fund information, which may be obtained by contacting your financial advisor or visiting the fund’s website at www.chinafundinc.com. This information is unaudited and is intended for informational purposes only. It is presented only to provide information on investment strategies and opportunities. 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. Investing in non-U.S. securities entails additional risks, including political and economic risk and the risk of currency fluctuations, as well as lower liquidity. These risks, which can result in greater price volatility, will generally be enhanced in less diversified funds that concentrate investments in a particular geographic region. The Fund is a closed-end exchange traded management investment company. This material is presented only to provide information and is not intended for trading purposes. Closed-end funds, unlike open-end funds, are not continuously offered. After the initial public offering, shares are sold on the open market through a stock exchange, where shares may trade at a premium or a discount. Holdings are subject to change daily.