N-Q 1 d132644dnq.htm THE CHINA FUND The China Fund

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-Q

 

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS

OF REGISTERED MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number: 811-05749

 

 

THE CHINA FUND, INC.

(Exact name of registrant as specified in charter)

 

 

c/o STATE STREET BANK AND TRUST COMPANY

ONE LINCOLN STREET

P.O. BOX 5049

BOSTON, MA 02206-5049

(Address of principal executive offices)(Zip code)

 

 

 

(Name and Address of Agent for Service)   Copy to:

Brian F. Link

Secretary

The China Fund, Inc.

100 Huntington Avenue

CPH-0326

Boston, MA 02116

 

Leonard B. Mackey, Jr., Esq.

Clifford Chance U.S. LLP

31 West 52nd Street

New York, New York 10019-6131

 

 

Registrant’s telephone number, including area code: (888) 246-2255

Date of fiscal year end: October 31

Date of reporting period: January 31, 2016

 

 

 


Item 1. Schedule of Investments.


THE CHINA FUND, INC.

SCHEDULE OF INVESTMENTS (unaudited)

January 31, 2016

 

 

 

 

Name of Issuer and Title of Issue

   Shares             Value (Note A)  

COMMON STOCK AND OTHER EQUITY INTERESTS

        

HONG KONG

        

Automobiles — (1.1%)

        

Zhengzhou Yutong Bus Co Ltd

     910,530                            $ 2,585,380   
        

 

 

 

Biotechnology — (1.6%)

        

3SBio Inc. 144A(1)*

     3,175,500            3,799,991   
        

 

 

 

Commercial Services & Supplies — (3.8%)

        

China Everbright International, Ltd.

     7,256,000            7,639,513   

Goldpac Group Ltd. #(1)

     5,521,000            1,637,511   
        

 

 

 
           9,277,024   
        

 

 

 

Construction & Engineering — (1.4%)

        

China State Construction International Holdings, Ltd. (1)

     2,110,000            3,364,795   
        

 

 

 

Diversified Financial Services — (3.8%)

        

Hong Kong Exchanges and Clearing, Ltd. (1)

     420,600            9,229,239   
        

 

 

 

Electronic Equipment & Instruments — (6.9%)

        

Digital China Holdings, Ltd. †(1)

     9,391,000            9,682,376   

Zhuzhou CSR Times Electric Co., Ltd.

     1,392,500            7,089,130   
        

 

 

 
           16,771,506   
        

 

 

 

Food Products — (2.5%)

        

Want Want China Holdings Ltd. (1)

     9,531,000            6,228,892   
        

 

 

 

Hotels, Restaurants & Leisure — (2.0%)

        

Sands China Ltd

     1,452,400            4,988,438   
        

 

 

 

Industrial Conglomerates — (5.0%)

        

Beijing Enterprises Holdings, Ltd.

     1,281,000            6,398,133   

CK Hutchison Holdings, Ltd.

     457,500            5,668,563   
        

 

 

 
           12,066,696   
        

 

 

 

Internet Software & Services — (7.8%)

        

Alibaba Group Holding Ltd. ADR *(1)

     33,166            2,223,117   

Baidu Inc. ADR *#

     15,821            2,583,095   

Tencent Holdings, Ltd.

     757,500            14,093,068   
        

 

 

 
           18,899,280   
        

 

 

 

 

See notes to schedule of investments.

 

1


THE CHINA FUND, INC.

SCHEDULE OF INVESTMENTS (unaudited) (continued)

January 31, 2016

 

 

 

 

Name of Issuer and Title of Issue

   Shares            Value (Note A)  

COMMON STOCK AND OTHER EQUITY INTERESTS (continued)

       

HONG KONG (continued)

       

Metals & Mining — (0.3%)

       

Tiangong International Co., Ltd.

     11,240,000         $ 750,454   
       

 

 

 

Oil, Gas & Consumable Fuels — (1.4%)

       

CNOOC, Ltd.

     3,411,000           3,464,278   
       

 

 

 

Personal Products — (1.3%)

       

Hengan International Group Co., Ltd.

     354,500           3,158,859   
       

 

 

 

Pharmaceuticals — (2.0%)

       

CSPC Pharmaceutical Group Ltd.

     5,804,000           4,858,806   
       

 

 

 

Real Estate Management & Development — (7.1%)

       

China Overseas Land & Investment Ltd. †

     2,334,000           6,727,779   

Hongkong Land Holdings, Ltd.

     497,000           3,116,190   

Sun Hung Kai Properties, Ltd. †(1)

     688,000           7,380,562   
       

 

 

 
          17,224,531   
       

 

 

 

Semiconductors & Semiconductor Equipment — (1.7%)

       

Semiconductor Manufacturing International Corp. *

     47,347,000           4,133,861   
       

 

 

 

Specialty Retail — (0.4%)

       

Zhongsheng Group Holdings, Ltd. (1)

     1,844,500           925,998   
       

 

 

 

Textiles, Apparel & Luxury Goods — (2.3%)

       

Li & Fung, Ltd. (1)

     9,798,000           5,585,666   
       

 

 

 

Wireless Telecommunication Services — (4.5%)

       

China Mobile, Ltd.

     984,000           10,865,459   
       

 

 

 

TOTAL HONG KONG — (Cost $165,822,627)

        56.9     138,179,153   
     

 

 

   

 

 

 

HONG KONG — “H” SHARES

       

Automobiles — (3.3%)

       

Qingling Motors Co., Ltd. #†(1)

     28,960,000           7,994,505   
       

 

 

 

Commercial Banks — (4.8%)

       

China Merchants Bank Co., Ltd.

     6,170,000           11,819,756   
       

 

 

 

Insurance — (5.9%)

       

Ping An Insurance (Group) Company of China, Ltd.

     3,193,500           14,371,744   
       

 

 

 

 

See notes to schedule of investments.

 

2


THE CHINA FUND, INC.

SCHEDULE OF INVESTMENTS (unaudited) (continued)

January 31, 2016

 

 

 

 

Name of Issuer and Title of Issue

   Shares            Value (Note A)  

COMMON STOCK AND OTHER EQUITY INTERESTS (continued)

       

HONG KONG — “H” SHARES (continued)

       

Transportation Infrastructure — (1.0%)

       

Qingdao Port International Co., Ltd. 144A#(1)

     6,596,000         $ 2,413,682   
       

 

 

 

TOTAL HONG KONG — “H” SHARES — (Cost $43,100,884)

        15.0     36,599,687   
     

 

 

   

 

 

 

TOTAL HONG KONG (INCLUDING “H” SHARES) — (Cost $208,923,511)

        71.9     174,778,840   
     

 

 

   

 

 

 

TAIWAN

       

Computers & Peripherals — (2.9%)

       

Advantech Co., Ltd. (1)

     798,841           4,756,504   

Catcher Technology Co., Ltd.

     304,000           2,229,561   
       

 

 

 
          6,986,065   
       

 

 

 

Diversified Financial Services — (1.9%)

       

Fubon Financial Holdings Co., Ltd.

     4,270,000           4,668,662   
       

 

 

 

Electronic Equipment & Instruments — (4.1%)

       

Delta Electronics, Inc.

     1,680,359           7,031,423   

Largan Precision Co., Ltd. (1)

     41,000           2,920,885   
       

 

 

 
          9,952,308   
       

 

 

 

Insurance — (1.5%)

       

Cathay Financial Holding Co., Ltd.

     3,462,000           3,748,877   
       

 

 

 

Leisure Equipment & Products — (1.5%)

       

Merida Industry Co., Ltd. (1)

     805,000           3,537,533   
       

 

 

 

Semiconductors & Semiconductor Equipment — (8.8%)

       

Hermes Microvision, Inc. (1)

     91,000           2,200,105   

Taiwan Semiconductor Manufacturing Co., Ltd.

     4,461,000           19,135,298   
       

 

 

 
          21,335,403   
       

 

 

 

TOTAL TAIWAN — (Cost $51,904,301)

        20.7     50,228,848   
     

 

 

   

 

 

 

TOTAL COMMON STOCK AND OTHER EQUITY INTERESTS — (Cost $260,827,812)

        92.6     225,007,688   
     

 

 

   

 

 

 

 

See notes to schedule of investments.

 

3


THE CHINA FUND, INC.

SCHEDULE OF INVESTMENTS (unaudited) (continued)

January 31, 2016

 

 

 

 

Name of Issuer and Title of Issue

   Shares            Value (Note A)  

EQUITY-LINKED SECURITIES

       

Automobiles — (1.6%)

       

Chongqing Changan Automobile Co., Ltd. Access Product (expiration 01/17/17) (2)144A

     558,897         $ 1,257,518   

Chongqing Changan Automobile Co., Ltd. Access Product (expiration 02/10/25) (3)144A

     487,000           1,092,828   

Chongqing Changan Automobile Co., Ltd. Access Product (expiration 04/23/20) (4)144A

     739,970           1,664,193   
       

 

 

 
          4,014,539   
       

 

 

 

Hotels, Restaurants & Leisure — (2.0%)

       

China CYTS Tours Holding Co., Ltd. Access Product (expiration 02/12/16) (2)144A

     1,635,575           4,808,590   
       

 

 

 

TOTAL EQUITY-LINKED SECURITIES — (Cost $12,382,005)

        3.6     8,823,129   
     

 

 

   

 

 

 

COLLATERAL FOR SECURITIES ON LOAN — (3.5%)

       

State Street Navigator Securities Lending Prime Portfolio (Cost $8,590,349)

     8,590,349         3.5     8,590,349   
     

 

 

   

 

 

 
     Face
Amount
              
       

SHORT TERM INVESTMENT — (2.6%)

       

Repurchase Agreement with State Street Bank and Trust, dated 01/29/16, 0.01%, due 02/01/16, proceeds $6,203,005; collateralized by U.S. Treasury Note, 3.13%, due 05/15/21, valued at $6,327,607, including interest. (Cost $6,203,000)

   $ 6,203,000         2.6     6,203,000   
     

 

 

   

 

 

 

TOTAL INVESTMENTS** — (Cost $288,003,166)

        102.3     248,624,166   
     

 

 

   

 

 

 

OTHER ASSETS AND LIABILITIES

        (2.3 )%      (5,650,182
     

 

 

   

 

 

 

NET ASSETS

        100.0 %    $ 242,973,984   
     

 

 

   

 

 

 

Notes to Schedule of Investments

 

* Denotes non-income producing security.
Affiliated issuer (see Note B).
# Illiquid security. At January 31, 2016, these securities amounted to $14,628,793, which represented 6.0% of total net assets.

 

See notes to schedule of investments.

 

4


THE CHINA FUND, INC.

SCHEDULE OF INVESTMENTS (unaudited) (continued)

January 31, 2016

 

 

 

 

(1) Security (or a portion of the security) is on loan. As of January 31, 2016, the market value of the securities loaned was $27,084,524. The loaned securities were secured with cash collateral of $8,590,349 and non-cash collateral with a value of $19,993,953. The non-cash collateral received consists of equity securities, and is held for the benefit of the Fund at the Fund’s custodian. The Fund cannot repledge or resell this collateral. Collateral is calculated based on prior day’s prices.
(2) Equity linked securities issued by Citigroup Global Markets Holdings.
(3) Equity linked securities issued by Hongkong and Shanghai Banking Corporation (HSBC).
(4) Equity linked securities issued by Credit Lyonnais (CLSA).

144A Securities restricted for resale to Qualified Institutional Buyers in the United States or to non-US persons. At January 31, 2016, these restricted securities amounted to $15,036,802, which represented 6.2% of total net assets.

ADR American Depositary Receipt
** At January 31, 2016, the aggregate cost for Federal income tax purposes is substantially the same as the aggregate cost for book purposes. Because tax adjustments are calculated annually, the following does not reflect tax adjustments. For the previous fiscal year’s Federal income tax information, please refer to the Notes to Financial Statements section in the Fund’s most recent annual report. Gross unrealized appreciation of investments was $17,747,054 which gross unrealized depreciation of investments was $57,126,054, resulting in net unrealized depreciation of investments of $39,379,000.

See notes to schedule of investments.

 

5


NOTE A – Security valuation:

Portfolio securities listed on recognized United States or foreign security 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, from 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. Securities for which market quotations are not readily available or are deemed unreliable are valued at fair value in good faith by or at the direction of the Board of Directors considering relevant factors, data and information including, if relevant, the market value of freely tradable securities of the same class in the principal market on which such securities are normally traded. Direct Investments, if any, are valued at fair value as determined by or at the direction of the Board of Directors based on financial and other information supplied by the Direct Investment Manager regarding each Direct Investment. Forward currency contracts are valued at the current cost of offsetting the contract. Equity linked securities are valued at fair value primarily based on the value(s) of the underlying security (or securities), which normally follows the same methodology as the valuation of securities listed on recognized exchanges.

Factors used in determining fair value may include, but are not limited to, the type of security, the size of the holding, the initial cost of the security, the existence of any contractual restrictions on the security’s disposition, the price and extent of public trading in similar securities of the issuer or of comparable companies, the availability of quotations from broker-dealers, the availability of values of third parties other than the Investment Manager or Direct Investment Manager, information obtained from the issuer, analysts, and/or the appropriate stock exchange (if available), an analysis of the company’s financial statements, an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold and with respect to debt securities, the maturity, coupon, creditworthiness, currency denomination, and the movement of the market in which they trade.

The Fund’s investments in Chinese 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 Chinese 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 Chinese 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.

Fair Value Measurement

The Fund has adopted fair valuation accounting standards which establish a definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion of changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below:

 

  Level 1 – Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access at the measurement date;

 

  Level 2 —Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active;

 

  Level 3 — Inputs that are unobservable.


The following is a summary of the inputs used as of January 31, 2016 in valuing the Fund’s investments carried at value:

ASSETS VALUATION INPUT

 

Description    Level 1      Level 2      Level 3      Total  

Common Stock And Other Equity Interests

   $ 225,007,688       $ —         $ —         $ 225,007,688   

Equity-linked Securities

     —           8,823,129         —           8,823,129   

Collateral For Securities On Loan

     8,590,349         —           —           8,590,349   

Short Term Investment

     —           6,203,000         —           6,203,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL INVESTMENTS

   $ 233,598,037       $ 15,026,129       $ —         $ 248,624,166   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Fund’s policy is to disclose transfers between levels based on valuations at the end of the reporting period. As of January 31, 2016, there were no transfers between Level 1, 2 or 3.

NOTE B – INVESTMENTS IN NON-CONTROLLED AFFILIATES*:

 

Name of Issuer

   Balance of
Shares/Par
Held
October 31,
2015
     Gross
Purchases
and
Additions
     Gross
Sales

and
Reductions
     Balance of
Shares/Par
Held
January 31,
2016
     Value
January 31,
2016
     Income From
Non-Controlled
Affiliates
     Gain/Loss
Realized on
Sale of
Shares as of
January 31,
2016
 

China Overseas Land & Investment Ltd.

     2,134,000         200,000         —           2,334,000       $ 6,727,779       $ —         $ —     

Digital China Holdings, Ltd.

     9,391,000         —           —           9,391,000         9,682,376         —           —     

Qingling Motors Co., Ltd.

     28,960,000         —           —           28,960,000         7,994,505         —           —     

Sun Hung Kai Properties, Ltd.

     688,000         —           —           688,000         7,380,562         213,006         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     41,173,000         200,000         —           41,373,000       $ 31,785,222       $ 213,006       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* Affiliated issuers, as defined in the 1940 Act as amended, include issuers in which the Fund held 5% or more of the outstanding voting securities.


Item 2. 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-Q that includes the disclosure required by this paragraph based on their evaluation of the 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 Securities Exchange Act of 1934 (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 last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 3. Exhibits.

The certification required by Rule 30a-2(a) of the 1940 Act (17 CFR 270.30a-2(a)) is attached as an exhibit to this filing.


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/ Joseph S. Quirk

  Joseph S. Quirk
  President of The China Fund, Inc.
Date:   March 25, 2016

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/ Joseph S. Quirk

  Joseph S. Quirk
  President of The China Fund, Inc.
Date:   March 25, 2016
By:  

/s/ Monique Labbe

  Monique Labbe
  Treasurer of The China Fund, Inc.
Date:   March 25, 2016