THE CHINA FUND, INC. (CHN)

The Martin Currie
Shanghai team

IN BRIEF

Net asset value per share	US$	22.13
Market price	US$	21.80
Premium/(discount)		(1.49	%)
Fund size	US$	504.1	m

Source: State Street Bank and Trust Company

At 31 May 2009 US$ returns

	China Fund NAV			MSCI Golden Dragon*
	%			%
One month		15.3			16.9
Year to date		27.3			37.5
One year		(24.1	)		(23.6	)
Three years %pa		14.6			6.9

Past performance is not a guide to future returns.
Source: State Street Bank and Trust Company. NAV performance.
*	Source for index data: MSCI.

MANAGER’S COMMENTARY

Lazarus-like, the China markets in May strode lustily ahead. The Hang Seng Index gained an impressive 17% and the Taiwan Weighted Index gained 15%, with the Shanghai A-shares lagging, up ‘only’ 6%. The Pharisees of the West remain sceptical about the Chinese recovery (at least judging by the limp response to your managers’ marketing efforts so far this year) but Martha, Mary and other local retail investors are now believers, as reflected in rising long margin levels and the newly bullish tone to much local broker research. The government continues to pour fuel on the flames: Beijing announced a 10% subsidy on the replacement of old cars and household appliances, and a reduction in the capital requirement for real-estate projects; Taipei announced that commercial, industrial and employee housing is open to Chinese investment, together with 101 other sectors; Hong Kong announced a HK$16.8-billion support scheme of tax rebates and rent holidays. Tiresome bad news (such as North Korea’s nuclear sabre-rattling, the shortfall in local government stimulus funding and the continued tough trading environment) was ignored. But equity issuance is rising (much of it not price-sensitive) and the valuation on many large-cap stocks looks stretched, presaging a summer correction.

We think US-dollar-based investors in the Fund are well placed to weather the increasing pressure that the US currency will come under because of its heavy debt burden. This is already being reflected in the New Taiwan dollar, which has appreciated by 6.8% against the US dollar since 1 March (the Fund’s weighting to Taiwan is 20.7%, with a bias towards domestically oriented companies). Given the difficulties faced by China’s exporters, we think it is likely that China will continue to peg the value of the renminbi to the US dollar, unless and until the dollar’s depreciation becomes more rapid.

INVESTMENT STRATEGY

The Fund is 94.9% invested with holdings in 69 companies. We were able to capture only a part of May’s exuberance. This is partly because of the direct portfolio (now 18% of the Fund, compared with a prospectus maximum of 25%), which tends to act as a drag on short-term performance during any sharp rally. It is also because the Fund has not bought back into deep cyclicals and property, preferring to stick with companies that can grow earnings in what we think will remain a difficult economic environment.

We added to the healthcare portfolio, buying the much-improved China Pharmaceutical (no longer a state-owned company) and adding to the laggard central research organization WuXi PharmaTech Caymen. We funded this through some profit-taking on Shandong Weigao. We also added to the positions in the skincare chain Natural Beauty and the underrated Taiwan-based retailer Familymart, whose China business is starting to take off after a long ‘learning period’. We also added to the education portfolio, buying the largest English-language school, New Oriental, which is widening its lead over all rivals.

We took the opportunity provided by improved liquidity to exit some of the less successful investments, where the prospects of improvement remain remote, such as Chinasoft, Yorkey, Samson, SPG and China Milk. We also took profits on toll-road operator Sichuan Expressway on valuation grounds. The overall effect was to raise a little cash ahead of the likely market correction.

Chris Ruffle, Martin Currie Inc*

* Martin Currie Ltd and Heartland Capital Management Ltd (HCML) have established MC China Ltd (MCCL), as a joint venture company, to provide investment management or investment advisory services to the range of China investment products managed by Martin Currie.

MCCL has appointed Martin Currie Investment Management Ltd (MCIM), or its affiliates, as investment manager of Martin Currie’s China investment products. HCML has seconded both Chris Ruffle and Shifeng Ke to MCIM, or its affiliates, on a full time basis with the same roles and responsibilities as if they were full time employees.

31 MAY 2009

FUND DETAILS

Market cap		US$ 496.6m
Shares outstanding		22,781,762
Exchange listed	NYSE
Listing date	July 10, 1992
Listed and direct investment manager	Martin Currie Inc

Source: State Street Bank and Trust Company.

SECTOR ALLOCATION

	The China			MSCI Golden
	Fund, Inc			Dragon
Consumer discretionary		23.4	%		4.4	%
Consumer staples		18.2	%		2.1	%
Healthcare		12.4	%		—
Industrials		12.1	%		8.4	%
Financials		10.1	%		36.5	%
Information technology		8.0	%		19.2	%
Materials		3.0	%		6.4	%
Energy		5.2	%		9.0	%
Utilities		1.5	%		4.3	%
Telecommunications		1.0	%		9.7	%
Other assets & liabilities		5.1	%		—

Source: State Street Bank and Trust Company. Source for index data: MSCI

ASSET ALLOCATION

Hong Kong 20.4% Direct 18.0% Taiwan 20.7% Equity linked securities (‘A’ shares) 15.4% Hong Kong ‘H’ shares 9.3% Singapore 4.9% United States 4.5% United Kingdom 1.7% Other assets & liabilities 5.1%

Source: State Street Bank and Trust Company

PERFORMANCE (US$ RETURNS)

	NAV		Market price
	%		%
One month		15.3		23.5
Year to date		27.3		31.8
Three years % pa		14.6		13.8

Past performance is not a guide to future returns.

Three year returns are annualized.

Source: State Street Bank and Trust Company

15 LARGEST HOLDINGS (42.6%)

Queenbury Investment (Huiyan)	Consumer discretionary	7.9	%
Ugent Holdings	Industrials	4.4	%
Far Eastern Department Stores	Consumer discretionary	3.6	%
Shandong Weigao Group	Healthcare	3.6	%
Wumart Stores	Consumer staples	3.3	%
Repurchase Agreement	Other	2.3	%
China Metal Products	Materials	2.2	%
China Fishery Group	Consumer staples	2.2	%
Ruentex Development	Financials	2.1	%
Shenzhen Agricultural Products	Consumer staples	1.9	%
Uni-President Enterprises	Consumer staples	1.9	%
China Huiyuan Juice	Consumer staples	1.9	%
HAND Enterprise Solutions	Information technology	1.8	%
Ports Design	Information technology	1.8	%
China Shineway Pharmaceutical	Healthcare	1.7	%

DIRECT INVESTMENTS (18.0%)

Queenbury Investment (Huiyan)	Consumer discretionary	7.9	%
Ugent Holdings	Industrials	4.4	%
HAND Enterprise Solutions	Information technology	1.8	%
Qingdao Bright Moon	Industrials	1.3	%
Highlight Tech	Industrials	1.2	%
Wuxi Paiho	Industrials	0.7	%
China Silicon (Series A Preferred)	Information technology	0.7	%
China Silicon	Information technology	0.0	%
TECO Optronics	Information technology	0.0	%

Source: State Street Bank and Trust Company.

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

	One		Three		Calendar		One			Three		Five		Since
	month		months		year to date		year			years		years		launch
	%		%		%		%			% pa		% pa		% pa
The China Fund, Inc.		15.3		37.0		27.3		(24.1	)		14.6		16.9		10.7
MSCI Golden Dragon		16.9		49.8		37.5		(23.6	)		6.9		11.5		8.9
Hang Seng China Enterprise		12.3		47.8		29.2		(25.4	)		15.3		19.0		20.7
Shanghai Stock Exchange 180		5.0		29.0		51.0		(23.2	)		32.0		21.3		n/a

Past performance is not a guide to future returns.

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

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 May 2009.

THE CHINA FUND INC. PREMIUM/DISCOUNT

Past performance is not a guide to future returns.

Source: Martin Currie Inc as at 31 May 2009.

10 YEAR DIVIDEND HISTORY CHART

Past performance is not a guide to future returns.

Source: State Street Bank and Trust Company.

31 MAY 2009

Sector	Company (BBG ticker)		Price		Holding		Value US$		% of portfolio
Hong Kong										20.4	%
China Huiyuan Juice		1886HK	HK $5.4			14,055,000		9,663,408		1.9	%
Ports Design	589 HK		HK $15.3			4,549,500		9,131,571		1.8	%
China Shineway Pharmaceutical	2877 HK		HK $6.2			11,184,000		8,987,883		1.7	%
Chaoda Modern Agriculture	682 HK		HK $4.9			14,263,357		8,905,111		1.7	%
Natural Beauty Bio-Technology	157 HK		HK $1.3			48,680,000		8,288,897		1.6	%
Xinao Gas	2688 HK		HK $12.0			5,084,000		7,869,715		1.5	%
Shangri-La Asia	0069 HK		HK $12.0			4,755,555		7,336,765		1.4	%
FU JI Food & Catering Services	1175 HK		HK $6.5			8,689,000		7,173,350		1.4	%
Fushan International Energy	639 HK		HK $3.1			16,044,000		6,395,041		1.2	%
Intime Department Store Group	1833 HK		HK $3.3			12,568,629		5,317,824		1.0	%
Golden Meditech	8180 HK		HK $1.1			35,040,000		5,107,575		1.0	%
Sina Corp	SINA US		US $28.1			162,700		4,573,497		0.9	%
Anta Sports	2020 HK		HK $8.5			3,883,000		4,257,538		0.8	%
TPV Technology	903 HK		HK $3.2			9,552,000		3,881,299		0.8	%
Huabao International	336 HK		HK $7.0			4,255,000		3,842,111		0.7	%
China Rare Earth	769 HK		HK $1.4			17,436,000		3,058,849		0.6	%
Yorkey Optical International	2788 HK		HK $1.4			12,968,926		2,308,635		0.4	%
Singapore										4.9	%
China Fishery Group	CFG SP		SG $1.2			13,255,000		11,277,730		2.2	%
Hsu Fu Chi International	HFCI SP		SG $1.1			9,484,000		7,413,219		1.4	%
CDW	CDW SP		SG $0.1			59,708,000		2,684,619		0.5	%
Financial One Corp	FIN SP		SG $0.3			12,030,000		2,413,240		0.5	%
China Milk Products Group	CMILK SP		SG $0.4			4,923,000		1,515,398		0.3	%
Hong Kong ‘H’ shares										9.3	%
Shandong Weigao Group	8199 HK		HK $18.6			7,808,000		18,391,316		3.6	%
Wumart Stores	995 HK		HK $8.7			15,118,000		17,005,251		3.3	%
ZTE Corp	763 HK		HK $25.9			1,461,926		4,855,957		0.9	%
Zijin Mining	2899 HK		HK $7.0			4,670,000		4,234,913		0.8	%
China Pharmaceutical Group	1093 HK		HK $4.4			6,276,000		3,570,210		0.7	%
Taiwan										20.7	%
Far Eastern Department Stores	2903 TT		NT $33.2			18,511,584		18,858,315		3.6	%
China Metal Products	1532 TT		NT $41.3			9,019,881		11,447,921		2.2	%
Ruentex Development	9945 TT		NT $27.4			12,694,000		10,669,194		2.1	%
Uni-President Enterprises	1216 TT		NT $36.1			8,728,581		9,669,960		1.9	%
Lien Hwa Industrial	1229 TT		NT $17.0			15,919,692		8,316,860		1.6	%
Yuanta Financial	2885 TT		NT $24.2			10,520,593		7,824,045		1.5	%
Taiwan Secom	9917 TT		NT $50.9			4,738,000		7,411,202		1.4	%
HTC Corp	2498 TT		NT$524.0			438,000		7,053,118		1.3	%
FamilyMart	5903 TT		NT $59.0			3,832,652		6,949,078		1.3	%
WPG Holdings	3702 TT		NT $34.5			6,320,000		6,700,573		1.3	%
KGI Securities	6008 TT		NT $16.4			8,800,000		4,421,567		0.9	%
Synnex Technology	2347 TT		NT $53.3			2,553,855		4,183,110		0.8	%
Merry Electronics	2439 TT		NT $35.1			3,584,340		3,866,269		0.8	%
United Kingdom										1.7	%
China Medical System Holdings	CMSH LN		£	1.53		3,623,188		8,957,158		1.7	%
United States										4.5	%
WuXi PharmaTech Cayman	WX US		US $8.5			800,790		6,806,715		1.3	%
Far East Energy	FEEC US		US $0.4			13,250,059		4,836,271		0.9	%
Mindray Medical International	MR US		US $23.0			191,700		4,411,017		0.9	%
New Oriental Education	EDU US		US $55.0			73,400		4,034,064		0.8	%
The9	CMED US		US $9.1			352,300		3,220,022		0.6	%
Equity linked securities (‘A’ shares)										15.4	%
CITIC Securities			US $3.7			3,166,200		11,791,929		2.3	%
Shenzhen Agricultural			US $2.5			4,000,000		10,035,004		1.9	%
China Yangtze Power			US $1.9			4,169,077		8,041,291		1.6	%
Wuliangye Yibin			US $2.4			2,857,007		6,959,669		1.4	%
Suning Appliance			US $2.1			2,874,013		6,121,648		1.2	%
Shanghai Yuyuan Tourist Board			US $2.7			216,820,000		5,909,434		1.1	%
Zhejiang Guyuelongshan			US $1.0			5,373,000		5,413,840		1.0	%
Daqin Railway			US $1.4			3,807,000		5,157,328		1.0	%
Shanghai Zhenhua Port Machinery			US $1.7			2,833,192		4,858,845		0.9	%
China Petroleum			US $1.5			3,100,000		4,712,585		0.9	%
Ping An Insurance			HK53.8			614,500		4,260,618		0.8	%
Shanghai International Airport			US $2.0			1,816,700		3,686,084		0.7	%
Dalian Zhangzidao Fishery			US $3.0			1,100,565		3,254,371		0.6	%

Sector	Company (BBG ticker)	Price		Holding		Value US$		% of portfolio
Direct									18.0	%
Queenbury Investment (Huiyan)		US$	90345.0		450		40,655,250		7.9	%
Ugent Holdings		HK$	100.0		177,000,000		22,832,081		4.4	%
HAND Enterprise Solutions		US$	18.9		500,000		9,430,000		1.8	%
Qingdao Bright Moon		US$	0.2		31,827,172		6,937,719		1.3	%
Highlight Tech		US$	1.8		3,366,893		5,999,999		1.2	%
Wuxi Paiho		US$	0.3		11,734,701		3,680,002		0.7	%
China Silicon (Series A Preferred)		US$	133.0		27,418		3,646,594		0.7	%
China Silicon			—		293,068		—		—
China Silicon (Warrants)			—		685,450		—		—
teco Optronics			—		1,861,710		—		—
Other assets & liabilities							26,386,517		5.1	%

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:

è	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.
è	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.
è	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.
è	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.
è	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.
è	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.
è	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.