Chairman of The China Fund Provides Insight on State of China's Economy

Tuesday, June 30, 2009, 11:30 AM ET - Skippack, PA

The GeoTeam would like to highlight the latest Letter to Shareholders that The China Fund released in its latest semi-annual report in which Chairman James Lightburn conveyed his optimism on the recovery of China's economy.

Dear Stockholders,

The six months under review were a much brighter period for investors in the Greater China region, with the A-share market the standout performer. How things have turned around since October. Six months ago, I was reporting that the Chinese markets were among the worst hit in a savage year for the world's stock markets. Now, the region is among the world's strongest. Against this backdrop, the Fund produced a positive return of 20.6%, lagging the benchmark MSCI Golden Dragon index, which rose 24%. Over longer periods, however, your portfolio is still comfortably ahead of its benchmark.

It took several months and a host of industry-specific stimulus measures but, towards the end of the period, we finally saw underlying macroeconomic data start to live up to the markets' bullish billing. While US GDP fell by 6.1% for the first quarter of this year, China posted an eerily symmetrical GDP rise of 6.1%. And Taiwan -- whose stocks were up 46% since end-October -- was also able to boast a 24% month-on-month rise in exports in March. As relations between Taiwan and its giant neighbor continue to improve, your managers have positioned the Fund to take advantage of increased cross-strait investment, with a 19.3% weighting to the Taiwan market.

In my last statement, I wrote that the managers were expecting a rally in the A- share market. I am pleased to report that the A-shares did indeed begin to recover strongly very soon after, and that they have continued their upward trajectory since. In line with their belief that the Chinese domestic market will be driven up further by the ample levels of liquidity there, the managers have accorded significant weighting (16.5%) to the A-share market.

In January of this year, the Fund distributed a dividend of US$5.82 per share. While this is considerably lower than last year's record distribution (of US$12.12), it represents a decent income, given the hugely challenging events of 2008.

With the ever-increasing array of government stimulus plans in both China and Taiwan, and the beginning of cross-strait investment starting to have a real effect on the underlying economics, your managers are expecting domestic sentiment in particular to improve and are looking forward to the remainder of the year with confidence.

Yours truly,

James Lightburn
Chairman