Edgar Filing: CHINA FUND INC

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 52^nd 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.

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.

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.

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.

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.

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