Legal Entity Identifier (LEI): 213800RIA1NX8DP4P938

abrdn China Investment Company Limited

Annual Report 31 October 2023

Seeking long-term capital growth by investing predominantly in Chinese equities

Financial Highlights

Financial Highlights

?	31 October 2023	31 October 2022	% change
Total equity shareholders' funds (net assets)	£213,247,000	£231,843,000	-8.0
Market capitalisation	167,197,000	202,870,000	?
Net asset value per Ordinary share (including current year income)	499.97p	511.98p	-2.3
Net asset value per Ordinary share (excluding current year income)A	499.00p	507.89p	-1.8
Share price (mid market)	392.00p	448.00p	-12.5
Discount to net asset value per Ordinary share (including current year income)B	21.6%	12.5%	?
Discount to net asset value per Ordinary share (excluding current year income)A	21.4%	11.8%	?
MSCI AC China All Shares Index (currency adjusted, capital gains basis)	1,953.68	1,885.64	+3.6
Net gearing/(cash)B	3.1%	-3.6%	?
Dividend and earnings	?	?	?
Revenue return per share	0.95p	4.00p	-76.3
Dividends per shareC	-	3.20p	-100.0
Dividend cover	N/A	1.25	?
Revenue reserveD	(£3,226,000)	(£3,640,000)	?
Operating costs	?	?	?
Ongoing charges ratioBE	1.07%	0.60%	?
A Based on capital only NAV. ? ? ?
B Considered to be an Alternative Performance Measure . ? ? ?
C The figures for dividends reflect the years in which they were earned (see note 8). ? ? ?
D Prior to payment of proposed Interim dividend.???
E 2022 includes the effect of the management fee waiver arrangement following the combination with Aberdeen New Thai Investment Trust in November 2021. ? ? ?

Performance (total return)

?	1 year	3 years	5 years	since 31/10/2021
?	% return	% return	% return	% return
Net asset valueA	-1.9	-26.0	-8.1	-38.2
Share priceA	-12.0	-32.7	-14.6	-43.3
MSCI China All Shares Index (currency adjusted)	+6.1	-31.8	+6.4	-27.3
A Alternative Performance Measure. ? ? ? ?

Strategic Report - Chairman's Statement

Overview

China has proved a challenging country for many investors over the 12 months to 31 October 2023 ("the Financial Year"). Overall, Chinese equities (as represented by the MSCI China All Shares Index), were up 6.1% in sterling terms, but this belies the significant volatility investors experienced during the Financial Year in which investors sought out value stocks over those considered higher quality. The abrdn China Investment Company Limited ("the Company" or "ACIC") net asset value ("NAV") total return for the Financial Year was -1.9% and the Ordinary share price total return was -12.0% in sterling terms, with the discount ranging from 10.8% in February 2023 to 21.6% in October 2023, trading at an average discount of 14.4% throughout the Financial Year.

Market review

The Financial Year began with optimism for recovery as the zero-Covid measures swiftly rolled back on 1 November 2022. Investors hoped that pent-up consumer demand would herald a strong economic recovery. However, the reality did not live up to market expectations. The economic recovery was not as smooth as many had anticipated and the predicted rebound fell short of expectations.

Meanwhile, investor confidence was also eroded by several lingering issues. Alongside geopolitical tensions between the US and China, there have been concerns over liquidity in China's real estate sector and the country's Local Government Financing Vehicles, which have amassed large levels of debt funding China's infrastructure boom. While government policy has been supportive, it has come through in small ripples rather than one big wave as investors had hoped. Again, the mismatch in expectations has been the cause of market volatility over the Financial Year.

Against this backdrop, many investors switched their focus away from high-quality structural growth companies favoured by your Manager and backed short-term trends, notably artificial intelligence ("AI") and China's state-owned enterprises ("SOE"). Investors were focused on deep value opportunities in SOE-heavy sectors such as energy and financials. Your Manager remains cautious about investing in these areas, preferring to take a long-term view. While AI-related businesses have seen a large rise in their share prices in a very short time, the popularity among investors is not necessarily matched by the relevant companies' fundamentals. While SOE reform is promising for some companies, it is important to consider whether the reforms are aligned with the needs of minority shareholders.

Performance

In terms of the Company's performance, the area hardest hit was the portfolio's consumption-focused holdings. With consumer confidence fragile across a wide section of the Chinese economy, these businesses saw their share prices suffer despite strong fundamentals and solid results. The strongest relative contribution to performance at a sector level was from communication services. You can read in more detail about the performance and portfolio activity in the Investment Managers Report.

The Board visited China and Hong Kong in October 2023. Due to the previous limitations of zero-Covid travel restrictions, this was the Board's first opportunity to meet the Company's wider investment and support teams in person since the Company's change of investment mandate in November 2021. The visit was an excellent chance to talk to the team in more detail about the current challenges and long-term opportunities in the Chinese market and how the portfolio can best reflect these.

Earnings & Dividend

Net revenue earnings after tax for the Financial Year to 31 October 2023 were £414K as compared to £1,851K in 2022. Most of the difference can be attributed to the Company having benefited from a fee waiver for six months of the previous year and the rise in the cost of debt as interest rates have risen.

The Company will not be declaring a dividend for the Financial Year (2022: 3.2 pence per share). Last year's dividend was required to be paid because the surplus earnings generated as a result of the fee waiver from your Manager reduced the cost base, such that a dividend was required for the Company to qualify as an investment trust. This year the costs are normalised and there is not sufficient excess income to necessitate a dividend.

Proposal for the Reconstruction and Voluntary Winding-up of the Company

On 28 November 2023, the Board announced that heads of terms had been agreed in principle for a proposed combination of the assets of the Company with the assets of Fidelity China Special Situations PLC ("Fidelity China") (the "Proposals"). The Board believes the Proposals will benefit shareholders in the Company ("Shareholders") going forward. Fidelity China is the top performing, largest and most liquid UK investment trust investing in China. The combination, if approved by each company's shareholders, will be implemented through a Guernsey scheme of reconstruction, under which the Company will be placed into voluntary liquidation and part of its cash, assets and undertaking will be transferred to Fidelity China in exchange for the issue of new ordinary shares in Fidelity China to Shareholders.

We have posted a circular to shareholders convening general meetings for Monday 11 March 2024 and Wednesday 13 March 2024 at which Shareholders will be asked to approve the resolutions necessary to effect the Proposals. Details of the business to be considered at each general meeting and directions for voting are included in the circular. It is expected that the effective date for the completion of the Proposals and members' voluntary liquidation, will take place before the deadline for the convening of an Annual General Meeting in respect of the Financial Year, which is 30 April 2024. In the event that the effective date of the Proposals is delayed beyond 30 April 2024 a Notice of AGM will be published and an Annual General Meeting in respect of the Financial Year will have to be convened, but this is viewed as unlikely.

Loan Facility and Gearing

During the Financial Year, the Company amended its two year £15 million revolving credit facility with the Industrial and Commercial Bank of China ("ICBC"). In September 2023, the Company agreed with ICBC an amendment to the financial covenants within the Loan Facility with ICBC. It was agreed that the acceptable Net Asset Value ("NAV") of the Company should be reduced from £200 million to £175 million. It was also agreed that, should the Company's NAV reach £250 million then the minimum NAV covenant would revert back to £200 million. The Company's option to increase the level of the commitment from £15 million to £30 million is subject to a minimum NAV of £200 million.

The Loan Facility was due to expire on 13 April 2024. However, on 15 January 2024, the loan was fully repaid and cancelled in anticipation of the completion of the Proposals.

Discount and buy backs

During the Financial Year, the Board closely monitored the Company's share price discount to NAV. The Board's intention is that ACIC's shares should not trade at a price which, on average, represents a discount that is out of line with its direct peer group over the long-term.

The Board seeks authority from Shareholders annually to buy back shares to assist the management of the discount.

Shares may be repurchased when, in the opinion of the Board, and taking into account factors such as market conditions and the discounts of comparable companies, the Company's discount is out of line with ACIC's direct peers and shares are available to purchase in the market. The Board believes that the principal purpose of share repurchases is to enhance the NAV for remaining shareholders, although it may also assist in addressing the imbalance between the supply of and demand for ACIC's shares and thereby reduce the scale and volatility of the discount at which the shares trade in relation to the underlying NAV.

During the Financial Year, ACIC bought back 2,631,266 shares or 4.2% of the share capital in issue at a cost of £13.78 million and a weighted average discount of 13.78%. This enhanced the Company's NAV by 0.79%.

The Company has not bought back any shares since the Financial Year End.

Management Team

The Board has been impressed by the calibre, experience and insight of the investment team that has been managing the Company's portfolio, and commends it to Shareholders. The Board is keen to stress the rationale for the Proposals is not driven by any shortcomings in the portfolio management, but by issues of liquidity which have proved insurmountable given the market's change in sentiment towards China.

Board Composition

There have been no changes to the Board Composition during the financial year. It is expected that the Board will all resign when the Company is put into liquidation at the end of the combination process.

I would like to thank my fellow Board Members for their support and guidance during a challenging year and for their assistance in the coming months.

Change of Portfolio Administrator, Depositary, Registered Office, Custodian and Company Secretary

In April 2023, the Company completed the process of moving most of its support functions to various entities within BNP Paribas S.A. Group ("BNP"). The depositary and administration of the portfolio moved to BNP Paribas S.A., Guernsey Branch. The registered office of the Company moved to BNP Paribas House, St Julian's Avenue, St Peter Port, Guernsey, GY1 1WA. The custodian was also moved to BNP Paribas S.A. At the same time abrdn Holdings Limited was appointed Company Secretary.

The Board decided to make these changes as BNP is the preferred service partner of the Company's Investment Manager, abrdn plc, and currently BNP provides these services to the majority of the investment companies that abrdn plc manages.

Annual General Meeting ("AGM")

Normally, the notice of the Company's AGM would accompany this Annual Report and the AGM would take place in mid-April.

However, in light of the Proposals, it is likely that the Company will be placed into voluntary liquidation before the Company's AGM would be scheduled to take place. The Board will update shareholders on the timings of all shareholder meetings once these are confirmed by notice of meeting as usual and by announcement on the London Stock Exchange.

Outlook

The Company's portfolio retains a significant exposure to stocks which are heavily influenced by Chinese consumers and, although the quick economic rebound some had expected has yet to emerge and recovery has been slower than anticipated, it is surely a matter of when, not if this gathers momentum. While negative headlines may have discouraged many foreign investors in recent months, there are still reasons for optimism for those investors looking for long-term capital growth in China.

Policy guidance is likely to remain supportive. China's government is introducing fiscal and monetary measures that should promote domestic consumption and enhance liquidity in the system. A large step forward came when the government announced plans to provide 1 trillion renminbi of low-cost financing for urban village renovations and affordable housing programmes. While not a panacea, this should help stabilise the country's property sector, generate demand and restore household confidence.

In terms of geopolitics, after the Financial Year end, US president Joe Biden met China's premier Xi Jinping. While most commentators considered this meeting as not an unqualified success, dialogue between the two states is a positive step toward easing relations.

The Board remains convinced of the long-term investment potential in China and hope that Shareholders will embrace the opportunity to be part of the larger, more liquid, Fidelity China Special Situations PLC and will benefit from the latter's extensive experience of investing in China.

Helen Green
Chairman
16 February 2024

Investment Managers Report

Market Environment

The Financial Year was marked by considerable market volatility, with a sharp contrast between strong performance in the first six months, followed by an extended period of weakness in the second half. At the beginning of the Financial Year, the central government's strict Covid policies hampered economic progress. As the authorities pivoted to reliance on herd immunity, policies were removed more quickly than expected. This effectively brought to an end to the nationwide zero-Covid policy. Share prices briefly surged on hopes of a big increase in activity, fuelled by the knowledge that considerable demand had built up during the Covid lockdowns. However, the strength of the recovery proved rather underwhelming and short-lived and company reports began to indicate that the market had run ahead of corporate fundamentals.

Other factors also began to influence sentiment. Among them was the difficult global macroeconomic backdrop, as many central banks tightened monetary policy as they attempted to stem inflationary pressures. Added to this was a flare-up in geopolitical tensions between the US and China. At home, there were growing concerns about the financial health of China's domestic real estate sector. Liquidity problems made life very difficult for some of the heavily indebted property giants, epitomised by Country Garden, one of the country's top three developers, which subsequently defaulted on an international bond. The high level of debt held by local government was also a concern, given the cost of servicing the debt and the fact that it is not permitted to sell land.

As China's economic recovery faltered, calls mounted for central government measures to support demand. Gradually some measures were implemented, but it became clear government was hesitant to provide the level of support investors expected, preferring to drip-feed a range of small, targeted measures, as opposed to an immediate and powerful boost.

The mood was lifted by a Politburo meeting in July when the government indicated a significantly increased level of economic support, aimed at improving the operating environment for private enterprises and the platform economy, boosting capital markets, and increasing investor confidence. Other measures included support aimed at the struggling property sector, including 1 trillion yuan in planned government bond issuance for infrastructure investment. Towards the end of the Financial Year there were signs the medicine was beginning to work, with third-quarter Gross Domestic Product ("GDP") better than expected.

If the global macroeconomic picture remains soft, more support may well be necessary, especially in the real estate sector. For investors, history suggests a patient, long-term approach leads to the best returns and that is likely to be the case once again in China.

Investment Themes

In constructing and managing the Company's portfolio, we employ a five-pronged thematic approach to identifying companies which we believe will deliver superior returns over the long-term. While this approach will not prevent us from buying into a position where we see fundamental value, we would expect most of the holdings to benefit from one of the themes below:

Aspiration: We expect consumer companies to fare well as China strives for a self-sufficient economic model. Positioning goods and services as high-quality, in part to gain pricing power is a powerful consumer trend. We believe urbanisation and rising middle-class wealth will drive demand for premium goods and services in the long-run.

Digital: This theme is aligned with the government's objectives of localisation, improving productivity, lowering costs, increasing innovation and helping to propel economic growth. Our holdings in this segment are primarily software-related names. Chinese companies have historically performed strongly given their knowledge of the domestic market and preference for localisation in areas such as cybersecurity and cloud services.

Green: This theme is set to benefit from government policy on decarbonisation and net-zero emissions by 2060. China dominates global manufacturing capacity for renewable energy and storage, accounting for 90% of solar and 75% of battery capacity and is well positioned to benefit from the huge global investment required in renewable energy and electricity storage. Other industries also need to decarbonise, so we expect greater investment in upgrading machinery and increasing energy efficiency. Our holdings include solar wafer-producers, component-makers, battery and related component-makers and automation-related firms.

Health: This theme aligns with government policy objectives to make healthcare cheaper and more accessible. This is particularly relevant in view of China's rapidly ageing society. The portfolio is overweight in healthcare services, including companies providing innovative research and clinical trial services that seek to bring high-quality therapies to market.

Wealth: This theme aligns with the government's objective of China becoming a moderately prosperous society by 2035. The financial services sector plays a key role in creating and protecting wealth. Our holdings contribute to the creation of strong financial and capital markets, and also include software companies that support the development of capital markets, such as trading and portfolio management. The adoption of insurance services remains low in China relative to the rest of the world. We see a large potential market in terms of life and health insurance, especially given China's ageing population.

Portfolio Performance

During the Financial Year, the Company's NAV total return was -1.9%, underperforming the total return of the MSCI China All Shares Index ("the Benchmark"). The Ordinary share price total return was -12.0% in sterling terms.

As referenced by your Chairman, while the market rose over the Financial Year, many of the top performing stocks were clustered around two specific themes: artificial intelligence ("AI") systems, including the rise of ChatGPT, and the reform of state-owned enterprises ("SOEs"). There was a notable move away from growth-orientated stocks to those offering more value, so our focus on quality companies detracted from performance.

Looking in more detail at the portfolio, the underperformance relative to the Benchmark was driven mainly by poor stock selection in three sectors: financials, consumer discretionary and information technology. With fragile domestic consumer confidence across a wide section of the Chinese economy, initial hopes of a strong recovery faded, and domestic investors rotated away from consumer names. As a result, some of our consumption-focused holdings suffered despite having strong fundamentals and posting solid results. Travel retailer China Tourism Group Duty Free (China Tourism) and food flavourings group Foshan Haitian were examples of this. Despite the negative sentiment, some of the Company's other consumer holdings were still able to deliver earnings growth, including Kweichow Moutai, Midea Group and Fuyao Glass.

There were also some contrasting fortunes from our China internet names over the year. Pinduoduo ("PDD") performed well after it exceeded the market's expectations with higher merchandise volumes, lower costs, and improved profitability. We brought it into the portfolio in the first half of the year for several reasons. It has expanded into the US through its Temu subsidiary and, in China, gained market share by offering its customers better value for money. We think the value of the overseas operations is not yet fully reflected in the stock. In the same space, JD.com underperformed due to some investors concerned about increasing competition in the e-commerce space.

The gaming sector proved more resilient than other consumer activities and returns from our holdings were strong, especially Tencent and Netease, which outperformed over the year. Steady growth and diversified revenue streams were the main attractions at Tencent while Netease benefited from product launches which were well received.

On a less positive note, two of our holdings in the alternative energy sector, Longi Green Energy Technology (Longi) and Sungrow Power Supply, proved to be a drag on performance. Solar panel producer Longi fell back on concerns over a potential drop in demand as well as geopolitical tensions. We reduced our position in the stock, although Longi remains the world's leading solar mono-wafer manufacturer with a cost advantage versus peers and a strong distribution network. Elsewhere, Yunnan New Material was also weak over the year, affected by the market's concerns about over capacity in the battery separator segment and rising geopolitical tension obstructing its growth overseas.

Within the information technology sector, construction software company Glodon dropped back after underwhelming results and concerns about the real estate sector. We remain confident about the company's prospects as property developers focus increasingly on cost management and operational efficiency.

Helping to mitigate some of the losses in the sector was a strong contribution from component maker Maxscend Microelectronics, which delivered solid results and was boosted by signs of a pickup in mobile phone sales.

Portfolio Activity

The changes made to existing holdings over the year fell broadly into two categories. Firstly, we exited stocks where we did not want to hold a position through volatile market conditions, or where we expected fundamental weakness to outweigh promising long-term potential. Secondly, we increased our positions in existing holdings in quality businesses when valuations reached very attractive levels and we had more confidence in near-term earnings. As such, adjustments have been stock-specific and not related to broad themes or sectors.

In terms of new positions, we introduced BYD, a leading new-energy electric vehicle manufacturer that controls multiple steps in its supply chain. We also established a new position in drivetrain components manufacturer Zhejiang Shuanghuan. The company's products have wide application across a range of machinery, including internal combustion engine vehicles, electric vehicles, and motorcycles.

We added China Resources Beer, a conglomerate with businesses including retail, beverages, food processing and distribution, which is run by a strong management team, for its balanced combination of defensive and growth brands. In financial services, we established a new position including China Life, which looks set to benefit from improving life insurance sales in China.

Finally, in the property sector, we added China's largest online real estate broker, KE Holdings, which boasts a diverse range of growing businesses related to property. As restrictions on property transactions begin to ease, we expect the company will see growing transaction volumes in the secondary market and, over the long-term, continue to increase its market share.

As mentioned in the Interim Report, the Company received regulatory approval for a Qualified Foreign Investor ("QFI") licence status, which provides access to the broader Chinese equity market. As a result of this, we purchased two new stocks: Centre Testing International and OPT Machine Vision.

Conversely, we exited real estate firm China Vanke, following sustained pressure on property developers and piecemeal support from the government and sold our stake in data-centre operator GDS as increased competition from large cloud businesses and state-owned enterprises had raised the level of uncertainty over GDS's earnings recovery. Other sales included Anhui Conch Cement, Shenzhou International and
Meidong Auto.

Outlook

China's post-Covid economic recovery was weaker than expected, but the central government is implementing incremental measures to support the economy and we remain optimistic about the longer-term case for investing in Chinese equities.

There are already signs the economy is responding to the economic stimulus measures implemented so far by the central government. While some property developers continue to struggle under large debt burdens, further support measures may be required.

At a time when markets in Europe and the US are having to cope with the higher interest rate environment, China's market offers a differentiated opportunity to investors. Some high-quality names have been sold off into the cyclical downturn, but the potential for a recovery could now provide a dual tailwind for these stocks. We have already seen early signs of this in the IT hardware sector, one of the first industries where de-stocking has been completed.

We continue to believe the best strategy is to focus on quality companies. It was reassuring to see that, despite the challenging conditions, around 74% of the companies we hold reported results that were at least in line with market expectations. Towards the end of the Financial Year, we saw nascent signs that investors are refocusing on fundamentals.

Volatile markets can often throw up compelling opportunities for investors. Across several sectors we are finding high-quality companies trading at attractive valuations. In some cases, these are businesses with strong growth profiles trading on valuations more typical of companies with little or no growth.

We expect a focus on quality and a disciplined approach to stock-picking should bear fruit as the recovery gathers pace. Stimulus measures will gradually lead to better prospects for consumers, helped further as they begin to use some of the considerable household savings built up in recent years. As a result, we continue to believe strongly in the long-term growth potential of China.

Nicholas Yeo and Elizabeth Kwik
abrdn Hong Kong Limited
16 February 2024

Portfolio - Ten Largest Investments

As at 31 October 2023

Tencent Holdings Ltd	?	Kweichow Moutai Co Ltd
(9.7% of net assets)	?	(7.0% of net assets)
An innovative leader in China's internet sector with a strong presence in fintech and cloud segments, backed by an entrenched social media and payment ecosystem.	?	The largest maker of Chinese alcohol spirit Baijiu, positioned in the ultra premium space where there are few competitors. The company is well placed to capture rising domestic consumption trends in China.
?	?	?
Alibaba Group Holding Ltd	?	China Merchants Bank Co Ltd
(5.9% of net assets)	?	(4.0% of net assets)
A leading global e-commerce company with leading platforms including Taobao and T-mall. The company also has interests in logistics and media as well as cloud computing platforms and payments.	?	A best-in-class retail bank in China, offering diversified financial services with a solid track record and sound risk management practices.
?	?	?
PDD Holdings Inc	?	AIA Group Ltd
(3.7% of net assets)	?	(3.2% of net assets)
The owner of popular shopping app Pinduoduo, which is gaining market share within China's e-commerce sector.	?	A leading pan-Asian life insurance company, it is poised to take advantage of Asia's growing affluence, backed by an effective agency sales force and a strong balance sheet.
?	?	?
Contemporary Amperex Technology Co Ltd	?	Meituan Dianping
(3.0% of net assets)	?	(2.8% of net assets)
The largest lithium battery maker in the world with leading technology and supply chain advantage, which is set to benefit from rise of electric vehicles and energy storage.	?	A diversified online services platform with over 400 million users, offering services including food delivery, travel bookings and wedding planning. It is optimally placed to capture rising consumption in mainland China.
?	?	?
BYD	?	Bank of Ningbo Co Ltd
(2.8% of net assets)	?	(2.7% of net assets)
The largest electric vehicle OEM in China, with its vertical integration providing the company with a cost advantage, strong supply chain management, and flexibility in the battery technology roadmap.	?	A city bank focused on lending to small and medium enterprises in the affluent Ningbo-Zhejiang region. The bank has shown superior returns and asset quality over the years.

Portfolio

As at 31 October 2023 ? ? ?
?	?	?	Percentage
?	?	Value	of net assets
Company	Industry (sub-sector)	(£'000)	(%)
Tencent Holdings Ltd	Interactive Media & Services	20,740	9.7
Kweichow Moutai Co Ltd (A)	Beverages	14,874	7.0
Alibaba Group Holding Ltd	Broadline Retail	12,640	5.9
China Merchants Bank Co Ltd (AH)	Banks	8,573	4.0
PDD Holdings Inc	Broadline Retail	7,772	3.7
AIA Group Ltd	Insurance	6,885	3.2
Contemporary Amperex Technology Co Ltd (A)	Electrical Equipment	6,338	3.0
Meituan Dianping - Class B	Hotels, Restaurants & Leisure	6,066	2.8
BYD (AH)	Automobile Components	5,965	2.8
Bank of Ningbo Co Ltd (A)	Banks	5,738	2.7
Top ten investments	?	95,591	44.8
NetEase Inc	Entertainment	5,311	2.5
Wuxi Biologics Cayman Inc	Life Sciences Tools & Services	4,244	2.0
Aier Eye Hospital Group Co Ltd (A)	Health Care Providers & Services	4,204	2.0
Maxscend Microelectronics Co Ltd (A)	Electronic Equipment Instruments & Components	4,180	2.0
Shenzhen Mindray Bio-Medical Electronics Co Ltd (A)	Health Care Equipment & Supplies	4,170	2.0
Hong Kong Exchanges & Clearing Ltd	Capital Markets	4,165	1.9
JD.com Inc - Class A	Broadline Retail	3,988	1.9
Proya Cosmetics Co Ltd (A)	Personal Care Products	3,916	1.8
China Life Insurance (AH)	Insurance	3,806	1.8
Fuyao Glass Industry Group Co Ltd (H)	Automobile Components	3,660	1.7
Top twenty investments	?	137,235	64.4
Wanhua Chemical Group Co Ltd (A)	Chemicals	3,611	1.7
Ping An Bank Co Ltd (A)	Banks	3,595	1.7
China Tourism Group Duty Free Corp Ltd (AH)	Specialty Retail	3,416	1.6
Sungrow Power Supply Co Ltd (A)	Electrical Equipment	2,939	1.4
Sinoma Science & Technology Co Ltd (A)	Chemicals	2,891	1.3
China Resources Land Limited	Real Estate Management & Development	2,851	1.3
Nari Technology Co Ltd (A)	Electrical Equipment	2,847	1.3
Chacha Food Co Ltd (A)	Food Products	2,767	1.3
Centre Testing International Group Co Ltd (A)	Professional Services	2,766	1.3
Shanghai M&G Stationery Inc (A)	Commercial Services & Supplies	2,734	1.3
Top thirty investments	?	167,652	78.6
Hefei Meiya Optoelectronic Technology Inc (A)	Machinery	2,639	1.2
Midea Group Co Ltd (A)	Household Durables	2,598	1.2
Hundsun Technologies Inc (A)	Software	2,530	1.2
Jiangsu Hengrui Medicine Co Ltd (A)	Pharmaceuticals	2,479	1.2
Luxshare Precision Industry Co Ltd (A)	Electronic Equipment Instruments & Components	2,442	1.2
Foshan Haitian Flavouring & Food Co Ltd (A)	Food Products	2,360	1.1
Zhejiang Weixing New Building Materials Co Ltd (A)	Building Products	2,301	1.1
China Resources Beer	Beverages	2,230	1.0
Silergy Corp	Semiconductors & Semiconductor Equipment	2,177	1.0
Amoy Diagnostics Co Ltd (A)	Biotechnology	2,161	1.0
Top forty investments	?	191,569	89.8
Li Ning Co Ltd	Textiles, Apparel & Luxury Goods	2,144	1.0
Venustech Group Inc (A)	Software	2,100	1.0
Inner Mongolia Yili Industrial Group Co Ltd (A)	Food Products	2,083	1.0
Estun Automation Co Ltd (A)	Machinery	2,020	0.9
Yantai China Pet Foods Co Ltd (A)	Food Products	1,958	0.9
LONGi Green Energy Technology Co Ltd (A)	Semiconductors & Semiconductor Equipment	1,955	0.9
KE Holdings - Class A	Real Estate Management & Development	1,938	0.9
Zhejiang Shuanghuan Driveline Co Ltd (A)	Automobile Components	1,818	0.9
Glodon Co Ltd (A)	Software	1,680	0.8
StarPower Semiconductor Ltd (A)	Semiconductors & Semiconductor Equipment	1,661	0.8
Top fifty investments	?	210,926	98.9
By-Health Co Ltd (A)	Personal Care Products	1,634	0.8
Yunnan Energy New Material Co Ltd	Chemicals	1,616	0.8
Hangzhou Tigermed Consulting Co Ltd (H)	Life Sciences Tools & Services	1,331	0.6
OPT Machine Vision Tech Co Ltd (A)	Electronic Equipment Instruments & Components	1,243	0.6
Zai Lab Ltd	Biotechnology	1,173	0.6
China International Capital Corporation (H)	Capital Markets	1,146	0.5
Komodo Fund	Unit Trusts	909	0.4
Wuliangye Yibin Co Ltd (A)	Beverages	504	0.2
Total investments	?	220,482	103.4
Cash plus other net current assets and liabilities	?	(7,235)	(3.4)
Net assets	?	213,247	100.0

Directors' Report (Extract)

The Directors of abrdn China Investment Company Limited ("the Company") present the report and financial statements for the Financial Year ended 31 October 2023.

Investment Objective

The Company's investment objective is to produce long-term capital growth by investing predominantly in Chinese equities.

Investment Policy

The Company invests in companies listed, incorporated or domiciled in the People's Republic of China ("China"), or companies that derive a significant proportion of their revenues or profits from China operations or have a significant proportion of their assets there. In furtherance of the investment policy, the portfolio will normally consist principally of quoted equity securities and depositary receipts although unlisted companies, fixed interest holdings or other non-equity investments may be held. Investments in unquoted companies will be made where the Investment Manager has a reasonable expectation that the company will seek a listing in the near future. The portfolio is actively managed and may be invested in companies of any size and in any sector.

The Company is expected to have an ESG rating equal to, or better than, the MSCI China All Shares Index and have meaningfully lower carbon intensity than the Index.

The portfolio is actively managed and the Company aims to outperform the MSCI China All Shares Index (in sterling terms). This index is used as a reference point for portfolio construction and as a basis for setting risk constraints, but does not incorporate any sustainability criteria. In order to achieve its objective, the Company will take positions whose weightings diverge from the index or invest in securities which are not included in the index. Investments may deviate significantly from the components of, and their respective weightings in, the MSCI China All Shares Index. Due to the active nature of the management process, the Company's performance profile may deviate significantly from that of the index.

The portfolio is expected normally to comprise between 30 and 60 securities (including any unlisted securities held) but may hold up to 100. No individual issuer will represent a greater weight in the portfolio than the lower of (i) 10% or (ii) its weight in the MSCI China All Shares Index (in sterling terms) plus 5%, as measured at the time of investment. The maximum permitted exposure to a single group is 20% of the Company's total assets, as measured at the time of investment.

The Company may continue to hold certain illiquid assets which were acquired prior to adoption of this policy pending their orderly disposal. These assets are not expected to represent a significant proportion of the portfolio.

Risk Management

The Company will at all times be invested in several sectors. While there are no specific limits placed on exposure to any one particular sector, the Company will at all times invest and ensure that the portfolio is managed in a manner consistent with spreading investment risk.

The Company may invest in unquoted securities and/or securities with lock-up periods provided that such investments, in aggregate, are limited to 10% of the Company's net assets at the time any such investment
is made.

With prior approval of the Board, the Company may use derivatives for the purposes of efficient portfolio management in order to reduce, transfer or eliminate investment risk in the Company's portfolio. Derivative instruments in which the Company may invest may include foreign exchange forwards, exchange-listed and over-the-counter options, futures, options on futures, swaps and similar instruments. The Company does not intend to enter into derivative or hedging transactions to mitigate against wholesale general currency or interest rate risk.

The Company may invest no more than 10% in aggregate of its gross asset value at the time of acquisition in other listed closed-ended investment funds, but this restriction will not apply to investments in such funds which themselves have stated investment policies to invest no more than 15% of their gross asset value in other closed-ended investment funds.

Gearing

The Company may employ gearing and may in aggregate, borrow amounts equalling up to 20% of gross asset value, although the Board expects that borrowings will typically not exceed 15% of gross asset value at the time of drawdown.

While it is intended that the Company will be fully invested in normal market conditions, the Company may hold cash on deposit or invest on a temporary basis in a range of cash equivalent instruments. There is no restriction on the amount of cash or cash-equivalent instruments that the Company may hold.

Business Activities

The Company is a closed-ended investment company incorporated and resident in Guernsey and holds a Premium Listing on the London Stock Exchange.

The Company became an investment trust with effect from 9 November 2021 and is registered in the UK for tax purposes.

Results

The Company's total comprehensive income for the Financial Year was a loss of £3,390,000 (2022: loss of £140,954,000). The Company's revenue return for the Financial Year amounted to a profit of £414,000 (2022: profit of £1,851,000).

Investment Report and Outlook

The Chairman's Statement and Investment Managers Report incorporate a review of the highlights during the Financial Year and the outlook for the forthcoming year.

Key Performance Indicators ("KPIs")

The Company's success in attaining its objectives is measured by reference to the following KPIs:

a) The Company seeks to generate consistent relative returns ahead of those generated by its Benchmark.

b) The Company seeks to achieve a positive absolute return over the longer term through its exposure to Chinese equities.

Performance

An overview of the Company's performance is contained in the Chairman's Statement and Investment Managers Report.

Ongoing Charges

For the Financial Year ended 31 October 2023, the Company's ongoing charges figure, calculated using the Association of Investment Companies' ("AIC") methodology, was 1.07% (2022: 0.60%), the calculation of which can be found in the Alternative Performance Measures section of this Report. The ongoing charges figure for 2022 includes the effect of the management fee waiver arrangement following the combination with Aberdeen New Thai Investment Trust in November 2021.

Principal Risks and Uncertainties

The Board and Audit Committee carry out a regular review of the risk environment in which the Company operates, changes to the environment and individual risks. The Board also identifies emerging risks which might affect the Company.

The Board is aware that there are a number of principal risks and uncertainties which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board, through the Audit Committee carries out a robust assessment of the Company's principal and emerging risks, which include those that would threaten its business model, future performance, solvency, liquidity or reputation.

The principal risks and uncertainties faced by the Company have been reviewed by the Audit Committee in the form of a risk matrix and the Committee also gives consideration to the emerging risks facing the Company.

During the Financial Year, the Board identified the implications for the Company's investment portfolio of a changing climate, and the increased use of AI, as emerging risks which could impact investee companies in the future. The global geopolitical situation and investor attitudes towards China are also emerging, and crystalising risks.

The Board has continued to assess these emerging risks and their impact on the portfolio as they develop. The Board receives regular reporting from the Manager on its approach to engagement with investees on these emerging risks amongst a variety of different topics.

The principal risks currently facing the Company, together with a description of the mitigating actions the Board has taken, are set out in the table below.

The Board considers its risk appetite in relation to each principal risk and monitors this on an ongoing basis. Where a risk is approaching or is outside the tolerance level, the Board will consider taking action to manage the risk. Currently, the Board considers the risks to be managed within acceptable levels.

The principal risks associated with an investment in the Company's shares are published monthly in the Company's factsheet and they can be found in the pre-investment disclosure document ("PIDD") published by the Manager, both of which are available on the Company's website.

Risk	Trend	Mitigating Action
Strategy - the Company's objectives or the investment trust sector as a whole become unattractive to investors, leading to a fall in demand for the Company's shares.	ì	Through regular updates from the Manager, the Board has monitored the relevance of the Company's strategy, the performance of equity markets, the economic and political environment, risks to the delivery of the Company's strategy in light of the external environment and the discount/ premium at which the Company's shares have traded relative to the net asset value. It receives feedback from the Company's broker and updates from the Manager's investor relations team at Board meetings to help to better understand investor sentiment towards the Company and its strategy. The Company engaged with its largest shareholders extensively during the development of the Proposals. The Company consulted with a number of its major shareholders during the development of the Proposals. Those shareholders, which comprise approximately 73 per cent of the Company's shareholder register, have indicated support for the Proposals.
Investment Performance - the Board recognises that market risk is significant in achieving performance and it reviews investment guidelines to ensure that they are appropriate. The Board regularly reviews the impact of geopolitical instability and change on market risk.	ì	The Board meets the Manager on a regular basis and has kept investment performance under close review. The Board recognises that market risk is significant in achieving performance and consequently it reviews strategy and investment guidelines to ensure that these are appropriate. The Board has set and has monitored the investment restrictions and guidelines and regular reports are received from the Manager on stock selection, asset allocation, gearing, revenue forecasts and the costs of running the Company. Representatives of the Manager attend all Board meetings and a detailed formal appraisal of the Manager is carried out by the Management Engagement Committee on an annual basis to ensure that the continued appointment of the Manager remains in the best interests of the shareholders. The Board engages with shareholders at its AGM and with larger shareholders at least annually to listen to sentiment towards the Company and its performance directly. As set out above, the Company engaged with its largest shareholders extensively during the development of the Proposals in light of performance challenges during the year.
Exogenous risks such as health, social, financial, economic and geopolitical - the effects of instability or change arising from these risks could have an adverse impact on stock markets and the value of the investment portfolio.	ì	The Board has discussed issues as they emerged with the Manager. During the year under review, such issues included increased inflation and interest rates and the resulting volatility that it created in global stock markets, the Russian invasion of Ukraine and associated sanctions, investor attitudes towards China and equity markets, and the steps that the Manager had taken or might take to limit their impact on the portfolio and the operations of the Company. The Board oversees the Manager's performance at each Board Meeting and formally considers whether the Company's strategy remains fit for purpose, in light of exogenous risks. The Board also regularly discusses the economic environment, geopolitical risks, industry trends and the potential impact on the Company with the Company's broker.
Operational Risk - in common with most investment trusts, the Board delegates the operation of the business to third parties, the principal delegate being the Manager. Failure of internal controls and poor performance of any service provider could lead to disruption, reputational damage or loss to the Company.	ó	The Audit Committee receives and reviews reports from the Manager on its internal controls and risk management (including an annual ISAE3402 Report). It also receives and reviews report from all its other significant service providers on at least an annual basis, including on matters relating to business continuity and cyber security. Written agreements are in place with all third party service providers. The Manager has monitored closely the control environments and quality of services provided by third parties, including those of the Depositary, through service level agreements, regular meetings and key performance indicators. A formal appraisal of the Company's main third party service providers is carried out by the Management Engagement Committee on an annual basis.
Governance Risk - the Directors recognise the impact that an ineffective board, unable to discuss, review and make decisions, could have on the Company and its shareholders.	ó	The Board is aware of the importance of effective leadership and board composition. The Board regularly reviews its own performance and, at least annually, formally reviews the performance of the Board and Chair through its performance evaluation process.
Discount / Premium to NAV - a significant share price discount or premium to net asset value per share could lead to high levels of uncertainty for shareholders.	ì	The Board has kept the level of the Company's discount / premium under regular review and has agreed parameters with the Manager for the management of share premium / discount to NAV. The Company has participated in the Manager's investment trust promotional programme where the Manager has an annual programme of meetings with institutional shareholders and reports back to the Board on these meetings.
Financial obligations - inadequate controls over financial record keeping and forecasting, the setting of an inappropriate gearing strategy or the breaching of loan covenants could result in the Company being unable to meet its financial obligations, losses to the Company and its ability to continue trading as a going concern.	ó	At each Board meeting, the Board reviewed management accounts and revenue forecasts. The Directors set the gearing policy within which the portfolio is managed. The Company's annual financial statements are audited by the independent auditor.
Legal and regulatory Risks - the Company operates in a complex legal and regulatory environment. As a Guernsey company investing in China with shares publicly quoted on the London Stock Exchange, as an alternative investment fund and an investment trust, there are several layers of risk of this nature.	ó	The Board has ensured that there is a breadth and depth of expertise within the Board and the organisations to which the Company has delegated to manage legal and regulatory risks. There are also authorities whereby the Board or individual Directors can take further advice by employing experts should that ever be considered necessary.

Borrowings

The Company may employ gearing and may in aggregate borrow amounts equalling up to 20% of gross asset value, although the Board expects that borrowings will typically not exceed 15% of gross asset value at the time of drawdown.

On the 13 April 2022 the Company entered into an unsecured 2 year multicurrency revolving loan facility with Industrial and Commercial Bank of China Limited, London Branch ("ICBC"), under which loans with a maximum principal amount of £15 million may be drawn (with a £15 million accordion option). The revolving loan facility agreement with ICBC terminates on 12 April 2024. As at 31 October 2023, CNH 137m was drawn down (equivalent to £15.4m) (2022: £nil). Subsequent to the year end, the loan facility was repaid and cancelled on 15 January 2024 in anticipation of the Proposals.

The Directors monitor the Company's gearing on a regular basis in accordance with the Company's investment policy and under advice from the Investment Manager.

Market Information

The NAV per Ordinary share is calculated for each business day and is published through a regulatory information service.

Ordinary Shares in Issue

As at 31 October 2023, the Company had 42,652,309

(2022: 45,283,575) Ordinary shares in issue (excluding shares held in treasury). The Company also held 19,520,638 Ordinary shares in treasury (2022: 16,889,372).

Purchase of Own Shares

The Company purchased 2,631,266 Ordinary shares during the Financial Year (2022: 1,341,251). The Company has not bought back any shares since the Financial Year End.

As described above, the Company normally seeks authority from shareholders annually to buy back shares, in order to assist the Board in taking action to deal with material and sustained deviation in the Company's discount from its peer group.

The Company's present authority to make market purchases of its own Ordinary shares will expire at the earlier of the General Meeting to approve the Proposals (more details are set out in the Chairman's Statement), or conclusion of the Annual General Meeting ("AGM") at which time a new authority to buy back shares will be sought. The timing of any purchase will be decided by the Board. Any shares bought back by the Company will either be cancelled, or if the Directors so determine, held in treasury (and may be re-sold). Purchases of own shares will only be made at a price representing a discount to NAV per Ordinary share.

The Panel on Takeovers and Mergers (the "Panel") must be consulted in advance in any case where Rule 9 of the Takeover Code (the "Code") might be relevant. The Company has consulted with the Panel in relation to its buy-back authority. On the basis that City of London Investment Management Company Limited ("CoL") has not appointed a representative to the Board of the Company and that none of the directors of the Company are acting in concert with CoL, the Panel has confirmed on an ex parte basis to the Company that the increase in CoL's shareholding, as a result of the purchase by the Company of its own shares pursuant to the authority granted at the last AGM, will not trigger an obligation for CoL to make a mandatory offer for the Company under Rule 9 of the Code.

Significant Shareholders

As at 31 October 2023 and as at the date of this report, the Company had noted the following significant shareholdings of the issued Ordinary shares (excluding treasury shares):

	Number of Ordinary Shares	% held
City of London Investment Management	12,804,675	30.02
Lazard Asset Management	9,274,384	21.74
Allspring Global Investments	9,149,451	21.45
1607 Capital Partners	2,576,195	6.04
West Yorkshire Pension Fund	1,522,656	3.57

The Company has not been notified of any changes to these holdings as at the date of this Report.

Non-Mainstream Pooled Investments ("NMPIs")

Financial Conduct Authority ("FCA") rules determine which investment products can be promoted to ordinary retail investors. Under these rules, certain investment products are classified as NMPIs and as a result face restrictions on their promotion to retail investors.

The Company currently conducts its affairs so that its shares can be recommended by Independent Financial Advisers ("IFAs") to retail investors in accordance with the FCA rules in relation to NMPIs and intends to continue to do so for the foreseeable future.

The Board has been advised that the Company's shares are excluded from the FCA's restrictions which apply to NMPIs because they are shares issued by a non-UK company which would qualify as an investment trust if resident in the UK.

Continuation Vote and Future Performance Linked Tender Offers

The Company does not have a fixed life but the Directors consider it desirable that shareholders have the opportunity to review the future of the Company at appropriate intervals.

The Company's Articles of Association, adopted on 26 October 2021, contain a provision for continuation ordinary resolutions to be put to shareholders at the Company's AGM to be held in 2027 and at every fifth AGM thereafter (the "Continuation Resolution"). If the Continuation Resolution is not passed then within four months of the continuation vote failing the Directors shall formulate and put to Members proposals relating to the future of the Company having had regard to, inter alia, prevailing market conditions and applicable regulations and legislation.

In addition, the Board intends that, if the Company's net asset value total return over the five years ending October 2026 does not exceed the total return of the MSCI China All Shares Index (in sterling terms), the Company will undertake a tender offer for up to 25% of the Company's issued share capital (excluding any shares held in treasury). Any such tender offer will be at a price equal to the then prevailing formula asset value ("FAV") per share less 2%.

However, as set out in the Proposals, the Company is expected to be placed into voluntary liquidation before any continuation vote.

Automatic Exchange of Information

Foreign Account Tax Compliance Act ("FATCA")

FATCA legislation, which was introduced in the United States of America, places obligations on foreign financial institutions such as the Company. In Guernsey, local law has been introduced that gives effect to the FATCA requirements and certain reporting obligations are placed on financial institutions as defined by this act. The Company is registered as a reporting financial institution and is subject to ongoing reporting obligations under the legislation.

The Common Reporting Standard ("CRS")

CRS is the result of the drive by the G20 nations to develop a global standard for the automatic exchange of financial account information, developed by the Organisation for Economic Cooperation and Development. Guernsey has introduced local legislation to give effect to CRS. Guernsey financial institutions are required to identify, review and report on accounts maintained by them which are held by account holders resident in jurisdictions with which Guernsey has agreed to exchange information.

Depositary and Custody Services

In April 2023, the depositary of the portfolio moved from Northern Trust (Guernsey) Limited to BNP Paribas S.A., Guernsey Branch. The custody services were also moved to BNP Paribas S.A from Northern Trust (Guernsey) at the same time.

Management

Since 1 June 2016, the Company's Alternative Investment Fund Manager has been abrdn Fund Managers Limited (previously called Aberdeen Standard Fund Managers Limited) ("AFML"), which is a wholly owned subsidiary of abrdn plc and is authorised and regulated by the FCA. AFML has been appointed to provide investment management, risk management and promotional activities to the Company.

The Company's portfolio is managed by abrdn Hong Kong Limited ("aHKL") by way of a group delegation agreement in place between AFML and aHKL. Promotional activities have been delegated to abrdn Investments Limited ("AIL") (previously called Aberdeen Asset Managers Limited).

Further details of the key terms of the agreement and fees payable to the Manager can be found in note 4 to the financial statements.

Alternative Investment Fund Managers Directive ("AIFMD")

The Company appointed AFML as its Alternative Investment Fund Manager ("AIFM") with effect from 1 June 2016.

An AIFM must ensure that an Annual Report for the Company is made available to investors for each financial year, provide the Annual Report to investors on request and make the Annual Report available to the FCA. The investment funds sourcebook of the FCA details the requirements of the Annual Report.

All the information required by those rules and relevant AIFM remuneration disclosures are or will be available on the Company's website (abrdnchina.co.uk).

Company Secretary and Administrators

BNP Paribas S.A., Guernsey Branch was appointed as the Company's Administrator in April 2023, replacing Vistra Fund Services (Guernsey) Limited ("Vistra"), abrdn Holdings Limited was appointed as Company Secretary in April 2023, in place of Vistra..

Further details on the fees payable under these agreements can be found in note 5 to the financial statements.

Payment of Suppliers

It is the Company's payment policy to obtain the best terms for all business and therefore there is no consistent policy as to the terms used. The Company contracts with its suppliers setting out the terms on which business will take place and abides by such terms. A high proportion of expenses, including management and administration fees, are paid within the month when invoiced.

Settlement of Share Transactions

Transactions in the Company's Ordinary shares are settled by the CREST share settlement system.

Donations

The Company did not make any political or charitable donations during the Financial Year under review.

Going Concern

The Board has considered and sought advice on the appropriateness of continuing to prepare the Financial Statements on a going concern basis given the material uncertainty in relation to the announcement of the Proposals - which would involve a scheme of reconstruction resulting in the voluntary liquidation of the Company - the Board concluded that it remained appropriate to continue to prepare the Financial Statements on a going concern basis.

The Directors believe that, should the Proposals not proceed, the Company has adequate resources to continue in operational existence for at least 12 months from the date of approval of this document. In reaching this conclusion, the Directors have considered the liquidity of the Company's portfolio of investments as well as its cash position, income and expense flows.

As at 31 October 2023, the Company held £8.7 million (2022: £8.5 million) in cash and £220.5 million in investments (2022: £224.1 million). It is estimated that approximately 99% (2022: 99%) of the investments held at the Financial Year end could be realised in one month. The total operating expenses for the Financial Year ended were £2.9 million (2022: £1.9 million), which on an annualised basis represented approximately 1.07% (2022: 0.60%) of average net assets during the Financial Year. At the date of approval of this report, based on the aggregate of investments and cash held, the Company has substantial operating expenses cover. The Company's net assets at 14 February 2024 were £187.1 million.

The Company's assets consist of equity shares in companies listed on recognised stock exchanges and in normal circumstances are realisable within a short timescale. The Board has reviewed the results of stress testing prepared by the Manager in relation to the ability of the assets to be realised in the current market environment.

The Company does not have a fixed life. However, as required by the Company's Articles of Association, adopted on 26 October 2021, in normal circumstances, the Company would submit a continuation resolution to shareholders at the Annual General Meeting to be held in 2027.

At the year end, the Company had a £15 million revolving loan facility with Industrial and Commercial Bank of China limited, London Branch (`ICBC'), terminating in April 2024., As at 31 October 2023, CNH 137m was drawn down (equivalent to £15.4m) (2022: £nil). The liquidity of the Company's portfolio supports the Company's ability to repay its borrowings at short notice. However, subsequent to the year end, the loan facility was repaid and cancelled on 15 January 2024 in anticipation of the Proposals. The Board is confident that the Company could obtain a broadly similar loan facility if the Proposals do not proceed.

Taking the above factors into consideration, the Board has a reasonable expectation that the Company has adequate resources to continue in operational existence and discharge its liabilities as they fall due for a period of at least twelve months from the date of approval of these financial statements, subject to approval of the Proposals. Accordingly, the Board continues to adopt the going concern basis in preparing the financial statements.

Material Uncertainty

On 28 November 2023, the Board announced that heads of terms had been agreed in principle for a proposed combination of the Company with the assets of Fidelity China Special Situations PLC ("Fidelity China") ("the Proposals"). The Proposals, if approved by each company's shareholders, will be implemented through a Guernsey scheme of reconstruction under which the Company will be placed into voluntary liquidation and part of its cash, assets and undertaking will be transferred to Fidelity China in exchange for the issue of new ordinary shares in Fidelity China to Shareholders. More detail can be found in the Chairman's Statement and in the RNS announcement itself.

The Board believes that the Proposals are in the best interests of shareholders and recommends that shareholders vote in favour of the relevant resolutions. However, there can be no certainty of the outcome at the date of this Annual Report and, therefore, there remains material uncertainty which may cast significant doubt on the Company's ability to continue as a going concern.

Should the Proposals not receive the necessary shareholder approvals the Board has a reasonable expectation that the Company has adequate resources to continue in operational existence and discharge its liabilities as they fall due for a period of at least twelve months from the date of approval of these financial statements. Accordingly, the Board continues to adopt the going concern basis in preparing the financial statements.

Viability Statement

The Directors have assessed the prospects of the Company over the period from the date of this report up until 31 October 2026 (the "Period"). They have done this on the basis, which they consider highly unlikely as 73 per cent of the Company's share register has indicated support for the Proposals, that the Proposals are rejected by Shareholders at the General meeting in March 2024. The Directors believe that the Period, being approximately three years, is an appropriate time horizon over which to assess the viability of the Company, particularly when taking into account the long-term nature of the Company's investment strategy.

In their evaluation of the prospects of the Company, the Directors have carried out a robust assessment of the emerging and principal risks facing the Company in the event that the Proposals are rejected, including those that would threaten its business model, future performance, solvency or liquidity. Developments in Chinese and other Asian markets and portfolio changes are discussed at quarterly Board meetings and the internal control framework of the Company is subject to formal review on at least an annual basis. Under normal market conditions, over 99% of the investments held by the Company could be sold within one month. However, there are circumstances which could lead to a reduction in market liquidity and, therefore, the ability of the Company to realise its investments.

The Directors do not expect there to be any material increase in the annual ongoing charges of the Company over the Period. The Company's income from investments and cash realisable from the sale of its investments provide substantial cover to the Company's operating expenses, and any other costs likely to be faced by the Company over the Period.

In normal circumstances, the continuation of the Company is subject to the approval of shareholders every five years, with the next vote due to take place at the Annual General Meeting in 2027.

Taking the above into account, the Directors have a reasonable expectation that, should the Proposals not proceed, the Company will be able to continue in operation and meet its liabilities as they fall due over the Period.

Auditor

KPMG Channel Islands Limited ("KPMG ") was re-appointed as auditor of the Company at the AGM held on 13 April 2023.

Annual General Meeting ("AGM")

Normally, the notice of the Company's AGM would accompany this Annual Report and the AGM would take place in mid-April. The deadline for the convening of an AGM in respect of the Financial Year is 30 April 2024. The Company has not scheduled the AGM for 2024 in light of the Proposals. If the Company is not placed into member's voluntary liquidation before then, the Company will issue an RNS announcement convening an AGM.

Corporate Governance

The Corporate Governance Statement in set out in the Annual Report.

Statement of Directors' Responsibilities

The Statement of Directors' Responsibilities on forms part of this report.

Helen Green
Chairman
16 February 2024