EX-99 2 fp0011018_ex99.htm fp0011018_ex99.htm
 
June 30, 2014
  
Monthly Insight
 
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 a least 50% of their assets in China; or (iii) companies organized in China. Under the policy, China means 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
(pa)
5 Years
(pa)
10 Years
(pa)
Since
Inception
NAV (%)
3.61
5.91
3.52
20.29
2.32
11.86
15.25
11.00
Market price (%)
4.08
6.33
1.73
22.85
1.37
10.94
12.16
10.00
Benchmark (%)
3.16
7.69
4.14
17.77
4.01
9.26
10.38
N/A
 
Performance History
2013
2012
2011
2010
2009
2008
2007
2006
NAV (%)
17.03
12.07
-24.37
27.25
72.82
-46.95
86.20
57.10
Market price (%)
11.48
20.46
-27.51
23.60
72.19
-40.65
50.24
65.67
Benchmark (%)
7.25
22.65
-18.36
13.60
67.12
-49.37
37.97
39.50

Source : State Street Bank and Trust Company. Source for index data: MSCI as at Jun 30, 2014. Total investment returns are historical and do not guarantee future results. Total investment returns reflect changes in net asset value and market price per share during each period and assumes that dividends and capital gains distributions, if any, were reinvested. The net asset value (NAV) percentages are not an indication of the performance of a shareholder's investment in the Fund, which is based on market price. NAV performance includes the deduction of management fees and other expenses. Market price performance does not include the deduction of brokerage commissions and other expenses of trading shares and would be lower had such commissions and expenses been deducted.
 
Portfolio Analysis
 
Sector allocation (%)
Country allocation (%)
Source : State Street Bank and Trust Company as at Jun 30, 2014.
* China includes A-shares (0.0%), A-share equity linked securities (8.0%), B-shares (0.0%), H-shares (20.7%) and Red-chips (10.6%).
 
 
 
 
 
 
The China Fund, Inc. (CHN)
 
Portfolio Analysis (continued)
 
Top 10 Holdings
Sector
%
China Minsheng Banking Corp., Ltd.
Financials
5.3
Beijing Enterprises Holdings, Ltd.
Industrials
4.3
Hutchison Whampoa, Ltd.
Industrials
3.6
Taiwan Semiconductor Manufacturing Co., Ltd.
Information Technology
3.5
Li & Fung, Ltd.
Consumer Discretionary
3.4
Delta Electronics, Inc.
Information Technology
3.4
PetroChina Co., Ltd.
Energy
3.2
Tencent Holdings, Ltd.
Information Technology
3.0
Tong Hsing Electronic Industries, Ltd.
Information Technology
3.0
Hong Kong Exchanges and Clearing, Ltd.
Financials
2.9
Total
35.6
 
Source: State Street Bank and Trust Company as at June 30, 2014.
 
Fund Details
 
NAV
$23.85
Market price
$21.17
Premium/Discount
-11.24%
Market cap
US$331.99m
Shares outstanding
15,682,029
Exchange listed
NYSE
Listing date
July 10, 1992
Benchmark
MSCI Golden Dragon Index (Total Return)
Fund Manager
Christina Chung
Listed and direct investment manager
Allianz Global Investors U.S. LLC
 
Source: State Street Bank and Trust Company as at June 30, 2014.
 
Distribution History (10 years)
 
Declaration
date
Ex-dividend
date
Record
date
Payable
date
Dividend/
Share
Income
Long-term
Capital
Short-term
Capital
13 Dec 2013
19 Dec 2013
23 Dec 2013
27 Dec 2013
3.3140
0.4387
2.8753
0.0000
10 Dec 2012
20 Dec 2012
24 Dec 2012
28 Dec 2012
3.2517
0.3473
2.9044
0.0000
8 Dec 2011
21 Dec 2011
23 Dec 2011
29 Dec 2011
2.9964
0.1742
2.8222
0.0000
8 Dec 2010
21 Dec 2010
24 Dec 2010
29 Dec 2010
2.2742
0.3746
1.8996
0.0000
9 Dec 2009
22 Dec 2009
24 Dec 2009
29 Dec 2009
0.2557
0.2557
0.0000
0.0000
8 Dec 2008
22 Dec 2008
24 Dec 2008
23 Jan 2009
5.8174
0.4813
5.3361
0.0000
7 Dec 2007
19 Dec 2007
21 Dec 2007
25 Jan 2008
12.1200
0.2800
9.0000
2.8400
8 Dec 2006
19 Dec 2006
21 Dec 2006
29 Dec 2006
4.0117
0.2996
2.7309
0.9812
9 Dec 2005
19 Dec 2005
21 Dec 2005
29 Dec 2005
2.5119
0.2172
2.2947
0.0000
13 Dec 2004
20 Dec 2004
22 Dec 2004
7 Jan 2005
3.5701
0.1963
3.2664
0.1074
 
Source : State Street Bank and Trust Company as at December 31,2013. Dividend/Share includes Income, Long-term Capital gains and Short-term Capital gains.
 
 
2
 
 
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 June 30, 2014.
 
The China Fund Inc. Premium / Discount
 
 
Past performance is not a guide to future returns.
Source: State Street Bank and Trust Company as at June 30, 2014.
 
 
3
 
 
The China Fund, Inc. (CHN)
 
Manager’s Commentary
 
Market Review
 
Chinese equity markets held up relatively well in June although the trading volume was light. The announcement that A- Shares would not be included in the MSCI Emerging Markets Index in 2015 did not have a great deal of impact on the equity markets. Economic data for the month was mixed, Chinese property prices showed the first month-on-month decline in two years based on average home prices over 70 cities. However, the HSBC China Flash Purchasing Managers' Index ("PMI") rebounded to a year-to-date high of 50.8; improvement was broad-based with both domestic orders and external demand sub-indices in expansionary territory, thanks to mini-stimulus packages taking effect. This suggests that the economy has stabilized albeit against the headwinds from a slowdown in the property market. The share price of Macau gaming stocks bounced late of the month and news on the Hong Kong property market remained encouraging with regards to transactions in both the primary and secondary markets.
 
In Taiwan, upbeat economic news cheered the equity market, data was solid across most indicators including exports, industrial production, corporate capitalization and domestic consumptions. With the overall recovery, the Taiwanese TAIEX index reached a new high since year 2008. While technology stocks continued to show strong momentum, non-tech sectors, in particular those companies with their factories in Vietnam, were adversely affected by the political tension within the region.
 
Fund Review
 
The Fund outperformed its benchmark - MSCI Global Dragon for the month. Stock selection in industrials contributed the most in terms of relative returns, while stock selection in consumer discretionary detracted the most. Two of the top contributors for the month were Beijing Enterprise, an integrated public utilities company in China and Largan Precision, an optical lens and optoelectronic components manufacturer in Taiwan. While there was no specific or material news on Beijing Enterprise during the month, the share price of Largan Precision was supported by strong demand for its optical lenses from Chinese smartphone vendors. Conversely, the top detractor was Merida industry, a Taiwanese bike manufacturing company. The share price dropped a moderate 4.4% (in US dollar terms). However, given the Fund's overweight in the company, the underperformance hurt the Fund's relative performance.
 
Key Transaction
 
One of the key transactions for the month was an initiation in the exposure to Dongfeng Motor, one of the largest automobile manufacturers in China. Sales of their new models are expected to surprise on the upside. Dongfeng and their joint venture brands are likely to regain market share this year given various local brands are suffering from difficulties in product upgrade as well as price competition.
 
Outlook
 
With the latest PMI data showing a recovery in economic activity in China, along with improving global economic growth prospects, we would expect Chinese equities to recover in the short term. Selective policy easing including moderate credit loosening in targeted areas or regions also should underpin the China's economy and therefore help to boost investors' confidence. In addition, while H1/2014 earnings results are to be released over the next two months, it is likely to be a mixed bag. We expect share prices to remain relatively resilient in anticipation of an improvement in the earnings picture along with the stabilization of China's economy in H2/2014.
 
For Hong Kong equities, our focus will continue to be on companies that we believe will benefit from the pickup in global economic growth.
 
In Taiwan, we believe economic data, abundant liquidity and strong corporate earnings will continue to support the stock market. We expect companies with growth stories will outperform value plays over the period.
 
Source : Allianz Global Investors US LLC as at June 30, 2014.
 
 
4
 
 
The China Fund, Inc. (CHN)
 
Portfolio Holdings
 
CUSIP
Security Description
Cost Base
Base MV
Shares
Percentage
of Net
Assets
B57JY2909
China Minsheng Banking Corp., Ltd.
19,750,925
19,629,063
21,671,100
5.3
608169900
Beijing Enterprises Holdings, Ltd.
12,981,141
15,911,174
1,683,500
4.3
644806002
Hutchison Whampoa, Ltd.
10,763,479
13,322,388
975,000
3.6
688910900
Taiwan Semiconductor Manufacturing Co., Ltd.
8,470,505
13,197,384
3,115,000
3.5
628625907
Li & Fung, Ltd.
12,020,152
12,668,800
8,538,000
3.4
626073902
Delta Electronics, Inc.
5,764,359
12,551,159
1,723,000
3.4
622657906
PetroChina Co., Ltd.
9,815,518
12,068,684
9,564,000
3.2
BMMV2K903
Tencent Holdings Ltd
4,058,182
11,367,915
743,500
3.0
B1L8PB906
Tong Hsing Electronic Industries, Ltd.
9,584,674
11,145,656
2,067,000
3.0
626735906
Hong Kong Exchanges and Clearing, Ltd.
10,237,199
10,737,355
576,300
2.9
B3WH02907
Hermes Microvision, Inc.
7,867,215
10,676,033
269,000
2.9
637248907
MediaTek, Inc.
7,101,686
10,604,696
627,000
2.8
645166901
Largan Precision Co., Ltd.
3,937,557
9,405,854
118,000
2.5
B00G0S903
CNOOC, Ltd.
10,305,318
9,294,298
5,160,000
2.5
B01FLR903
Ping An Insurance (Group) Company of China, Ltd.
9,814,375
8,922,535
1,153,500
2.4
17313A533
Gree Electric Appliances, Inc. Access Product (expiration 01/16/15)
6,453,442
8,799,281
1,838,546
2.4
B1DYPZ905
China Merchants Bank Co., Ltd.
9,119,881
8,512,393
4,312,000
2.3
658444906
Merida Industry Co., Ltd.
7,537,957
8,355,550
1,260,000
2.2
671815900
Qingling Motors Co., Ltd.
8,718,221
8,183,219
28,960,000
2.2
635186901
Digital China Holdings, Ltd.
14,791,043
7,995,349
8,865,000
2.1
674347901
Semiconductor Manufacturing International Corp.
8,495,182
7,501,894
86,779,000
2.0
685992000
Sun Hung Kai Properties, Ltd.
7,349,177
7,234,920
527,000
1.9
663094902
China Everbright International, Ltd.
2,622,673
6,758,469
4,736,000
1.8
600245005
ASM Pacific Technology, Ltd.
6,711,400
6,716,035
614,900
1.8
B2R2ZC908
CSR Corp., Ltd.
6,594,509
6,621,119
8,802,000
1.8
620267906
Advantech Co., Ltd.
1,978,619
5,397,549
632,000
1.4
B58J1S907
Chailease Holding Co., Ltd.
5,196,680
5,362,489
2,132,000
1.4
B5M70F906
Primax Electronics, Ltd.
4,778,725
4,911,206
3,174,000
1.3
635415904
Epistar Corp.
4,361,736
4,490,857
1,812,000
1.2
ACI009HH0
China Suntien Green Energy Corp., Ltd.
4,612,718
4,157,026
12,785,000
1.1
B633D9904
Zhongsheng Group Holdings, Ltd.
3,919,603
3,866,302
2,996,500
1.0
B0PH5N900
Dongfeng Motor Group Co., Ltd.
3,527,820
3,775,214
2,108,000
1.0
17314W591
Jiangsu Hengrui Medicine Co., Ltd. Access Product (expiration 01/16/15)
3,554,120
3,752,630
696,350
1.0
99ZMCS903
Kweichow Moutai Co., Ltd. Access Product (expiration 10/26/15)
3,630,733
3,592,494
141,530
1.0
665157905
Comba Telecom Systems Holdings, Ltd.
7,615,377
3,567,862
11,150,000
1.0
913BMZ902
Ping An Insurance (Group) Company of China, Ltd. Access Product (expiration 06/30/15)
3,600,309
3,465,011
541,933
0.9
ACI07WMD5
China International Travel Service Corp., Ltd. Access Product (expiration 08/25/15)
3,801,918
3,364,951
626,632
0.9
B45BF9907
Sanan Optoelectronics Co., Ltd. Access Product (expiration date 02/15/16)
3,541,260
3,319,849
871,809
0.9
B16NHT900
Shui On Land, Ltd.
4,771,127
3,212,266
13,172,500
0.9
B236JB905
Tiangong International Co., Ltd.
5,449,044
3,123,595
18,480,000
0.8
B688XD907
Beijing Jingneng Clean Energy Co., Ltd.
3,525,009
2,795,592
6,244,000
0.7
ACI0873X6
Shanghai Jahwa United Co., Ltd. Access Product (expiration 06/12/17)
2,654,660
2,740,816
460,100
0.7
B1G1QD902
Industrial & Commercial Bank of China, Ltd.
2,696,755
2,734,410
4,325,000
0.7
651795908
Natural Beauty Bio-Technology, Ltd.
4,906,910
2,339,238
47,710,000
0.6
42751U205
Hermes Microvision, Inc. GDR
1,368,073
1,860,288
46,900
0.5
B5SRR0900
Shanghai Jahwa United Co., Ltd. Access Product (expiration 01/16/15)
1,113,417
1,153,871
193,700
0.3
ACI0090H8
Zong Su Foods
15,000,034
0
2,677
0.0
 
Source: State Street Bank and Trust Company as at June 30, 2014.
 
 
5
 
 
The China Fund, Inc. (CHN)
 
Important Information
 
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 information contained herein has been obtained from sources believed to be reliable but Allianz Global Investors U.S. LLC 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 websi te at www.chinafundinc.com. This information is unaudited and is intended for informational purposes only. It is presented only to provide information on the Fund's holdings, performance and strategies. 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 by a closed-end fund, its shares can be purchased and sold on the open market through a stock exchange, where shares may trade at a premium or a discount. The market price of holdings is subject to change daily.
 
 
6