Half-year Report

FIDELITY CHINA SPECIAL SITUATIONS PLC

Half-Yearly results for the six months ended 30 September 2022 (unaudited)

Financial Highlights:

The Company’s net asset value (“NAV”) total return declined -8.4% in sterling terms, while the MSCI China Index (the Benchmark Index) total return declined by -5.5% in the six-month reporting period to 30 September 2022.

The share price of the Company fell by -9.8% over the same period, reflecting a widening of the discount to the NAV.

The Portfolio Manager’s conviction in the value on offer is reflected in the Company’s relatively high net gearing.

Contacts

For further information, please contact:

Smita Amin

Company Secretary

01737 836347

FIL Investments International

PORTFOLIO MANAGER’S HALF-YEARLY REVIEW

RECENT MARKET ACTION

Before delving into the period under review, I think it is critical to address the recent stock market performance since the closing of the National Party Congress in late October. Without a doubt, sentiment towards the China market seems dire (in fact, probably the worst I have seen), and the market action that we have recently endured has seen a number of mostly foreign investors sell down their exposure. However, I do believe the sell-down was somewhat overdone. Whilst I appreciate that there are concerns over some of the perceived optics from the Congress itself, we did not enter this political event with high expectations for shifts in policy direction. Economic growth remains challenged, with the current policy around zero COVID (“ZCP”) and the weakness in the property sector being major factors. I remain of the view that policy will gradually move to address these factors, along with further easing of both the monetary and fiscal side. This stands in contrast to the trends we see in many developed markets. Similarly, valuations have moved to significant discounts versus both history and other markets. In this environment, whilst it may seem contrarian versus the consensus bearish view, my investment process remains consistent, and if anything, I am finding a plethora of buying ideas and opportunities and this is reflected in rising net gearing levels for the Company.

THE PERIOD UNDER REVIEW
Given persistent concerns over a global surge in inflationary pressures and mounting fears of a recession, volatility across most asset classes remained elevated – Chinese equities were no exemption. During the reporting period, Chinese economic growth continued to face multiple headwinds; notably the negative impact on demand and activities resulting from the ZCP, the lingering weakness in the property sector, despite stimulus measures from the government, and the threat of ongoing geopolitical tensions. Unlike most major economies though, benign inflationary pressures in China have enabled the People’s Bank of China to maintain a more accommodative monetary policy stance versus other central banks. From an economic perspective, China’s policy and earnings cycle is perhaps at least one cycle ahead of other major economies; and I believe this factor, juxtaposed with current undemanding market valuations and the country’s long-term growth drivers, should not be ignored despite the market volatility we have experienced.

We have recently seen extreme market reactions following the conclusion of the 20th Party Congress of the Communist Party. Whilst the market appears disappointed by President Xi not nominating a successor and the make up of the seven members of the Standing Committee of the Politburo, neither outcome should have come as a major surprise to market participants. Additionally, it is difficult to point to any obvious policy changes as a result of this outcome. While national security and social equality are clearly important for Beijing, I believe that economic growth also remains a priority, as laid out in the mid-term economic goals which imply a doubling GDP per capita by 2035 (as mentioned at the 20th National Party Congress on 17 October 2022).

With this backdrop, self-sufficiency and import substitution will continue to be major themes in the coming years. Recent US regulations limiting the sale of advanced semiconductor chips/chipmaking equipment used in Artificial Intelligence and supercomputing to Chinese companies have made headlines globally. I continue to monitor these developments and the impact they could have on various industries and companies. I believe this could accelerate the development of domestic industries and supply chains in China, a trend which is clearly supported by the government. I remain focused on potential investment opportunities as a result. During the same period, the rapid pace of innovation continues, which combined with the domestic substitution trend and market consolidation stories, has driven a significant weighting in industrials in the portfolio.

Meanwhile, I believe the peak of new regulatory reforms, particularly in China’s internet space, is now behind us. The Chinese authorities have now laid out the framework around areas such as anti-monopoly, data protection, data sharing, and cross-selling within an online eco-system. The increasing visibility around the regulatory landscape should result in further clarity around the earnings outlook and add support to valuations in these sectors.

The impact of China’s ZCP has taken a toll on the economy as well as on market sentiment. While China’s new leadership unsurprisingly made no concrete shift from the ZCP, and while we are witnessing targeted lockdowns again, we believe the direction of travel in the ZCP is positive. We are already seeing some nuanced relaxation and improvement in areas such as the shortening of quarantine times and the adoption of a standardised approach across the nation. I do not think we should underestimate the risks from China’s COVID policy and can expect that the short-term outlook for the consumer sector will remain tough; however, if we see gradual tweaks, this could underpin an economic recovery as we have seen in other countries following the loosening of restrictions. Household deposits have grown significantly since the beginning of the pandemic, and this has the potential to be released in increased spending with some normalisation after the relaxation of the ZCP.

Ongoing weakness in the property sector has been another drag on growth for the economy. Year to date property sales through September are down 30%. Some private property developers are in financial difficulty, defaulting on debt and delaying project completions. The mortgage boycott in July 2022 further heightened investors’ concerns over the property sector. We are closely watching the potential systemic risks. While the credit risk potential for mortgages remains quite manageable in my view, we need to keep an eye on the banks’ exposure to private developers. We have increasingly seen supportive policies to tackle these issues, including government funding to complete unfinished projects, tax cuts etc. While we also believe that keeping property prices affordable remains a priority as part of general common prosperity goals, we believe we will see more meaningful supportive measures to stablise the sector. I expect that while private developers will continue to be challenged, the stronger state-owned developers with sound balance sheets are poised to weather this period of uncertainty, and will be able to gain significant market share as the sector consolidates – think of it as a flight to safety to the better managed developers. Shareholders should note that the Company currently has no direct exposure to private property developers or the state-owned banks whose lending support they rely on.

In terms of earnings, while revisions, on the whole, continue to be down, we saw some positive signs across several sectors. Fundamentally, when looking at our proprietary research sectoral views for September 2022, we saw downgrades in industries such as jewellery, autos, cosmetics, agriculture, healthcare and building materials as sporadic COVID outbreaks and a weaker macro environment continued to weigh on fundamentals. However, looking at sector performance, key upgrades were in advertising and renewables, with downgrades coming from data centres, cosmetics, agriculture building and materials. So, valuations have become attractive for some sectors whilst others are not yet seeing negatives fully priced in. Near-term fundamentals generally remain tepid, but I believe this is more than factored into what remain very attractive equity valuations. We continue to be very focused on sectors that will benefit from policy support, such as those in renewable energy, semiconductors and infrastructure related sectors. However, these themes are well-known by the market and so often trade at stretched valuations. Therefore, stock picking is key.

Against this backdrop, the Company’s NAV declined 8.4% in sterling terms, while the MSCI China Index (the Benchmark Index) was down by 5.5% in the six-month reporting period to 30 September 2022. The Company’s share price fell by 9.8% over the same period, reflecting a widening of the discount to NAV. (All performance data on a total return basis.)

PERFORMANCE AND PORTFOLIO REVIEW
Together with the broad Chinese market, the Company’s performance slid on concerns over stringent COVID controls, rising geopolitical tensions and a deteriorating inflationary outlook globally. Mixed corporate results and weak economic data kept investors on edge. Structural growth winners within the financial sector were weighed down by wider macroeconomic concerns and weak sentiment. Selected healthcare holdings declined amid geopolitical tensions and regulatory overhang.

Within financials, the shares of credit facilitator Lufax Holding have been materially de-rated, triggered by concerns over pending fintech regulation, American depositary receipt (“ADR”) de-listing risk and asset quality deterioration. I believe regulatory rectification is likely close to its end, and the company’s future Hong Kong listing will mitigate the ADR de-listing risk. The weak macroeconomic environment amid a lockdown-stricken Chinese economy has negatively impacted its asset quality. It has taken steps to tighten credit standards and prioritised asset quality over loan growth, which I believe, in turn, mitigates these risks. Lufax remains severely undervalued and provides significant upside potential. Its strength is underpinned by its leading position in online lending with differentiated positioning.

Challenging market conditions and weak sentiment negatively weighed on the performance of third-party wealth management company Noah Holdings. Despite these challenges, Noah’s assets under management remains resilient. It continues to grow its client base, positioning itself for robust growth once we see some stabilisation of the market. Its strength is underpinned by structural tailwinds from growth in the wealth management sector in China amid rising household assets and its shift into alternative/capital market products.

Shares in China’s biggest social network company Tencent Holdings declined as it faced a series of short-term headwinds. Its advertising business has been impacted significantly by Shanghai’s lockdowns, while its gaming business is experiencing tough competition internationally and slower growth domestically due to regulation. In addition, its fintech and cloud businesses have slowed down on weak consumer and enterprise spending. Nevertheless, its outlook is improving as its advertising business has started to recover. Commercial payment transactions are also recovering to high-teens growth.

China’s contract manufacturing organisation (“CMO”) and contract research organisation (“CRO”) industry remains pressured by concerns over a slowdown in global biotech funding and an overhang from US-China geopolitical tensions. As such, the position in Asia’s dominant CRO/CMO player WuXi AppTec detracted from performance. Nonetheless, it is a long-term growth compounder backed by solid fundamentals. WuXi is building capacity globally, helping to minimise risks from geopolitical turmoil. Shares in Chinese artificial intelligence software maker SenseTime declined. Although its 2021 results were in line on sales and profits, concerns over a higher loss ratio and a lack of standardisation in scaling up the business weighed on the shares.

On a positive note, robust stock picking within the materials and information technology sector, along with an overweight position in the industrials sector, contributed to performance. Within materials, the allocation to plastics pipe company ERA added value. The company remains a key industry player with a solid market position. Its market share is expected to expand further as it takes share from smaller players and delivers solid volume growth. Moreover, it is building up its distribution channels and optimising product flow in weak regions to improve utilisation and efficiency. The shares of electronic specialty gas products supplier in the semiconductor supply chain, Guangdong Huate Gas, advanced. Its performance was supported by positive sentiment around Chinese semiconductor’s localisation and import substitution trends. Huate’s successful launch of new semiconductor gas products, as well as continued capacity expansion, places it favourably to gain market share from incumbent players over the long-term.

A position in the oil tanker shipping company COSCO SHIPPING Energy Transportation (“CSET”) added notable value. CSET is the largest oil tanker owner in the world and has benefited from the tailwind associated with oil demand recovery as air and road traffic regain momentum. During the review period, markets priced in demand recovery from easing restrictions in China, extended seaborn oil trades to Europe as well as the accelerated ramp up of US shale production. At the same time, tanker supply was tight, with 25-year low orderbooks, low floating storage and increased scrapping of aged vessels. Recognition of this demand and supply mismatch has led to strong gains in its share price.

The position in control systems provider HollySys Automation Technologies contributed to performance. Its industrial automation operations remain strong amid an improving product offering. It offers a long runway for growth especially through opportunities in factory automation. Its shares were supported by news of a privatisation deal for the company.

Also contributing to positive relative returns were preferred names in the unlisted space. The biggest contributor within the unlisted segment was Pony.ai, an autonomous vehicle technology company. The company saw a significant uplift in value with its most recent capital raising.

THE CONTINUED FOCUS ON ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”) AND SUSTAINABILITY
Fidelity International continues to develop its sustainability ratings system and processes to meet the ever-evolving landscape of investing through an ESG lens. Before highlighting our most recent updates, I think it’s important to reiterate why we have institutionalised sustainability into our investment process. There are three layers to our approach. The first is a foundation of robust sustainable investing practices that consists of a common language, framework, and standards – this helps to build sustainable financial futures. The second layer is made up of different modules that will evolve to meet dynamic requirements – building digital tools to support effective analysis, integration, and the reporting of sustainability in our investment process – for example, climate ratings and voting monitoring. The final layer is how we communicate our process externally (such as meetings and engagement with companies’ management teams).

There are also four key components to our research platform. The first consists of sustainable research and ratings where we assess an issuer’s sustainability characteristics, with an emphasis on how it operates and any associated negative impact and risks. The Sustainable Development Goals (“SDG”) Alignment measures the percentage of revenues that contribute to the UN’s SDGs with an emphasis on what it does and its associated positive impacts. From a financial perspective, this research and rating assess an issuer’s potential financial risk and reward. Finally, the climate rating addresses an issuer’s alignment to its net zero aim; in the case of Chinese companies this is a 2060 target.

We believe our proprietary ratings add value to third party ESG research and have enhanced our offering to better suit our clients’ objectives as well as adhering to our fundamental investment philosophy. Too often different ESG research providers reach different conclusions on the same companies, due to different underlying methodologies and judgements on materiality. Furthermore, by using an average, we feel that the ‘overall’ score used by others can mask a complex set of underlying “E”,“S” and “G” factors.

In China, I continue to see progress when it comes to sustainable investing; of note, an accelerating renewable energy build-out for green energy transition, the focus on protecting gig-work welfare and mandatory ESG reporting by corporates. In fact, the improvement in the level of ESG transparency has seen 1,410 companies (accounting for 30% of total A-Share listed companies) issue ESG reports this year (2021: 1,151 companies and 24.6% of the A-Share listed companies). While there is still room for improvement, especially in areas such as corporate E and S disclosure rates, I believe efforts to improve communications and engagements with companies will continue to help drive strong progress.

CURRENT POSITIONING
In terms of opportunities and ideas, the Company remains focused on stocks and sectors well-positioned to benefit from China’s long-term structural growth drivers. The regulatory wave that we have seen over the last 12 months or more has created significant bifurcation in valuations in the market between those sectors “aligned” with government policy and those that have come under regulatory scrutiny. Therefore, it is not simply a matter of owning companies in the portfolio that are aligned – one needs to be disciplined and selective.

During the review period, I increased the Company’s portfolio exposure to consumer names offering extremely attractive valuations as many have been sold-off over lockdown concerns. As such, I increased the allocation to branded variety retailer MINISO. Its unique quasi-direct retail model enables fast store expansion and strong operational control. I believe governance concerns here are overdone. I also added a new holding in premium liquor producer Kweichow Moutai. It has a dominant position in the country’s high-end liquor market. With its strong brand and pricing power, the company stands to benefit from market share gains and improving management incentives to deliver earnings. It offers a structural growth opportunity in the Chinese consumption space.

I continue to remain overweight in the IT sector, which has been subject to greater regulation and scrutiny by Chinese regulators. Nevertheless, I believe the worst is now behind us, and the focus going forward will be on refining and implementing those regulatory policies while being mindful of the inherent risk. Within the technology space, I added a new position in information technology services provider Longshine Technology, which is a major beneficiary of China’s power grid digitalisation. It is well-positioned to benefit from grid digitalisation capital expenditure growth and its software solutions are critical in promoting grid digitalisation on the consumption side.

The significant potential for growth in the Chinese semiconductor industry, particularly given the geopolitical pressures, is well understood in the market, and reflected in quite extended valuations for many of the related companies listed in China. Leveraging our global research capability, we identified and invested in a Japan listed semiconductor component supplier, RS Technologies, which has a unique China angle which has not been well understood by the market. The company is the global leader in reclaimed wafers, which tends to be far less cyclical than other parts of the semiconductor supply chain. In addition, the company is seeing significant growth in its 38% owned China subsidiary company, Gritek, which is ramping up production of prime wafers. We correctly identified significant value in this subsidiary, which was not reflected in the parent company valuation: Gritek started trading on the STAR board in Shanghai from 10 November 2022 and has appreciated significantly at the time of writing. Whilst we have seen a major move upwards in RS Technologies on the back of this, it still trades at a significant discount to the value of its stake in its subsidiary.

Industrials continue to account for a sizeable position in the Company’s holdings. The core thesis around industry consolidation remains very much in place as areas such as building materials are very fragmented relative to more developed markets. Some of our paint holdings have underperformed due to property sector concerns, but I maintain a high level of conviction in the long-term story and see significant potential for future upside as fundamentals normalise. For many of these companies, the exposure to residential property is relatively low and they should benefit from the increased infrastructure investment that I expect to occur.

I also increased exposure to the real estate sector. All the challenges discussed here have pushed valuations to extremely low levels. I added a new position in state-owned enterprise property developer China Overseas Grand Oceans Group (“COGO”). COGO remains well-placed to consolidate the market upon industry recovery and COVID-19 loosening measures. It is also poised to benefit from the decline in privately-owned developers in the lower-tier cities. The company’s balance sheet remains solid, and extremely low valuations offer a comfortable margin of safety.

Conversely, I have trimmed the exposure to the energy sector. The positions in the oil tanker shipping company CSET and in China Merchants Energy Shipping were sold, the former after strong performance. CSET is still performing well but is less attractively valued when compared to other parts of the market.

OUTLOOK
Some commentators have suggested that the consolidation of President Xi’s power and the make-up of the Politburo Standing Committee mean policy going forward will focus squarely on social issues, i.e. the focus on “common prosperity” of recent years, and that growth policies and innovation will take a back seat. I believe these concerns are misplaced. It is worth highlighting that, despite the Congress delivering no overall change, policy tweaks are ongoing: from the move away from full city lockdowns to the potential to reassess policy, if the World Health Organisation amends its overarching view on the virus. Hong Kong’s recent change in approach also bodes well for improvement. The significant impact of lockdowns on the economy are clear and should be a strong incentive for change. I remain of the view that economic expansion remains a priority and we will see increasing measures to spur growth both from the authorities’ fiscal and monetary stance. Key economic meetings in the months ahead, starting with the Central Economic Work Conference in December 2022 are going to be closely monitored.

As always, I remain most focused on the operating performance of the companies that I invest in. While government policy is always something to evaluate, analysing the outlook for companies and management teams’ ability to navigate and execute their strategies is key, and what will deliver performance for stocks over the long-term. The resilience of Chinese private companies should not be underestimated. I have been encouraged by the pick-up in the number of companies taking themselves private and the record level of share buybacks taking place this year, which attests to the appeal of current undemanding valuations.

As highlighted upfront, current market sentiment is probably the worst I have ever seen it, driving valuations to extreme levels, but I have no doubt this is creating great opportunities to add value for the Company’s shareholders on a medium-term view. My conviction in the value on offer is reflected in the Company’s relatively high net gearing as I look to capitalise on these opportunities. I continue to be a shareholder in the Company and in line with recommendations around disclosing one’s “skin in the game”, I can confirm that I currently own 96,742 shares.

Dale Nicholls
Portfolio Manager
30 November 2022

Spotlight on the Top 5 Holdings AS AT 30 SEPTEMBER 2022

The top five holdings comprise 30.0% of the Company’s Net Assets.

Industry Communication Services
Tencent Holdings
% of Net Assets 10.7%

Tencent Holdings is a world-leading internet and technology company that develops innovative products and services to improve the quality of life of people around the world. Its businesses are among the world’s largest and span social network, music, web portals, e-commerce, internet services, payment systems, smartphones, mobile and online multiplayer games. As China’s internet user growth slows down, Tencent’s enviable user base gives it a strong competitive advantage, despite recent regulatory and macro headwinds. It became one of the first internet companies in China to publish a carbon neutrality plan.

Industry Consumer Discretionary
Alibaba Group Holding
% of Net Assets 8.6%

Alibaba Group Holding holds a dominant position in the e-commerce market. It enables businesses to transform the way they market, sell, operate and improve their efficiencies by providing technology infrastructure and marketing reach. Its core China retail marketplace, Taobao and Tmall, continues to deliver enhanced user engagement and add more value to merchants. The company has built a comprehensive ecosystem that has superior breadth and depth and is the foundation of its loyal merchants and consumers base, which ultimately supports its pricing power.

Industry Consumer Discretionary
Pony.ai (unlisted)
% of Net Assets 5.0%

Pony.ai is the Toyota backed autonomous vehicle technology company and presents significant growth potential as a market leader in an emerging new industry that will transform traditional ways of transportation. The company plans to commercialise autonomous driving for all sizes of vehicles and to operate on both ridesharing and delivery service networks. Since the launch of its robotaxi app, it offers a robtaxi service in Beijing and Guangzhou.

Industry Information Technology
DJI International (unlisted)
% of Net Assets 3.1%

DJI International is a world leader in developing and manufacturing innovative drone and camera technology. It is well positioned to benefit from increasing market demand for commercial drones for varied purposes, including photography, filmmaking, mapping, surveying, inspections, agricultural spraying and search-and-rescue. DJI offers a large selection of products to meet market needs, supported by its advanced technological breakthroughs.

Industry Manufacturing
Chime Biologics (unlisted)
% of Net Assets 2.6%

Chime Biologics is a Chinese based Contract Development and Manufacturing Organization (CDMO). The company provides solutions supporting customers from early-stage biopharmaceutical development through to late-stage clinical and commercial manufacturing. It is a long-term compounder and is well positioned to benefit from booming CDMO demand globally, particularly from strong demand in China. The company’s rapid growth is mainly driven by it continuously increasing research and development investment in biologic drugs and the increasing penetration rate of biologic drug outsourcing services.

Twenty Largest Holdings as at 30 September 2022

The Asset Exposures shown below measure the exposure of the Company’s portfolio to market price movements in the shares, equity linked notes and convertible bonds owned or in the shares underlying the derivative instruments. The Fair Value is the value the portfolio could be sold for and is the value shown on the Balance Sheet. Where a contract for difference (“CFD”) is held, the fair value reflects the profit or loss on the contract since it was opened and is based on how much the share price of the underlying shares has moved.

	Asset Exposure		Fair Value £000
	£000	%¹	Fair Value £000
Long Exposures – shares unless otherwise stated
Tencent Holdings (shares and long CFDs)
Internet, mobile and telecommunications service provider	131,601	10.7	66,307
Alibaba Group Holding (shares and long CFDs)
e-commerce group	105,498	8.6	32,472
Pony.ai (unlisted)
Developer of artificial intelligence and autonomous driving technology solutions	61,721	5.0	61,721
DJI International (unlisted)
Manufacturer of drones	37,755	3.1	37,755
Chime Biologics Convertible Bond (unlisted)
Contract Development and Manufacturing Organization (CDMO)	32,090	2.6	32,090
ERA (shares and equity linked notes)
Manufacturer of plastic valves and fittings	30,828	2.5	30,828
Crystal International Group
Clothing manufacturer	29,294	2.4	29,294
WuXi AppTec Group (long CFDs)
Pharmaceutical, biopharmaceutical and medical device outsourcing provider	29,127	2.4	(392)
Venturous Holdings (unlisted)
Investment company	28,885	2.3	28,885
ByteDance (unlisted)
Technology company	28,779	2.3	28,779
HollySys Automation Technologies
Provider of automation control system solutions	28,702	2.3	28,702
China Life Insurance (long CFDs and call option)
Insurance company	26,821	2.2	(2,058)
VNET Group
Internet and data center service provider	26,023	2.1	26,023
China Pacific Insurance Group (long CFDs)
Insurance company	25,589	2.1	(2,151)
Trip.com Group (long CFD)
Travel services provider	23,829	1.9	1,744
Postal Savings Bank of China
Commercial retail bank	23,718	1.9	23,718
SKSHU Paint Company
Paint manufacturing company	21,195	1.7	21,195
China Foods (long CFD)
Processor and distributor of food and beverages	20,845	1.7	577
Lufax Holding (shares and call options)
Technology empowered personal financial services platform	20,770	1.7	18,637
Luk Fook Holdings International (long CFD)
Jewellery company	20,394	1.7	(2,260)
	-----------------	-----------------	-----------------
Twenty largest long exposures	753,464	61.2	461,866
Other long exposures	972,393	78.9	765,001
	-----------------	-----------------	-----------------
Total long exposures before hedges (144 companies)	1,725,857	140.1	1,226,867
	=========	=========	=========
Less: hedging exposures
Hang Seng Index (future)	(111,849)	(9.1)	4,634
Hang Seng China Enterprises Index (future)	(65,978)	(5.4)	1,839
iShares China Large-Cap ETF (put option)	(9,213)	(0.7)	1,221
	-----------------	-----------------	-----------------
Total hedging exposures	(187,040)	(15.2)	7,694
	=========	=========	=========
Total long exposures after the netting of hedges	1,538,817	124.9	1,234,561
	=========	=========	=========
Short exposures
Short CFDs (2 holdings)	17,669	1.4	3,218
Put options (1 holding)	1,957	0.2	653
	-----------------	-----------------	-----------------
Total short exposures	19,626	1.6	3,871
	=========	=========	=========
Gross Asset Exposure²	1,558,443	126.5
	=========	=========
Portfolio Fair Value³			1,238,432
Net current liabilities (excluding derivative instruments)			(6,309)
			=========
Net Assets			1,232,123
			=========

1 Asset Exposure is expressed as a percentage of Net Assets.

2 Gross Asset Exposure comprises market exposure to investments of £1,256,604,000 plus market exposure to derivative instruments of £301,839,000.

3 Portfolio Fair Value comprises investments of £1,256,604,000 plus derivative assets of £15,978,000 less derivative liabilities of £34,150,000 (per the Balance Sheet below).

Interim Management Report and Directors’ Responsibility Statement

Unlisted Companies
The Company can invest up to 15% of its Net Assets plus Borrowings in unlisted companies which carry on business, or have significant interests, in China. The limit is applied at the time of purchase of the investment. The unlisted space in China continues to expand quite markedly and offers excellent opportunities for patient and long-term investors.

As at 30 September 2022, the Company had 17.3% of Net Assets plus Borrowings in nine unlisted investments (31 March 2022: 13.2% of Net Assets plus Borrowings in ten unlisted investments). In the reporting period, the Company elected to convert its holding of the unlisted preference shares in Xiaoju Kuaizhi (Didi Chuxing) to listed American Depositary Shares.

Gearing
The Company has a three-year unsecured fixed rate facility agreement with Scotiabank Europe PLC for US$100,000,000. The interest rate is fixed at 2.606% per annum until the facility terminates on 14 February 2023.

To achieve further gearing, the Company uses contracts for difference (“CFDs”) on a number of holdings in its portfolio.

As at 30 September 2022, the Company’s Gross Gearing, which is Gross Asset Exposure in excess of Net Assets, was 26.5% (31 March 2022: 26.1%). The level of Gross Gearing is determined by the Manager within the limit set by the Board of 30%. Net Gearing, which nets off short positions, was 23.3% (31 March 2022: 23.5%).

Discount Management
The Board believes that investors are best served when the Company’s share price trades close to its net asset value (“NAV”). The Board recognises that the share price is affected by the interaction of supply and demand in the market based on investor sentiment towards China and the performance of the NAV per share. The Board has a discount control policy in place whereby it seeks to maintain the discount in single digits in normal market conditions. Subject to market conditions, it will authorise the repurchase of shares with the objective of stabilising the share price discount within a single digit range. There are certain limits imposed on the Company’s ability to repurchase its own shares in the market.

The Company’s discount widened from 7.5% at the start of the reporting period to 9.0% at the end of the reporting period. The Board undertook active discount management in the period, the primary purpose of which was, and remains, the intent to reduce discount volatility. As a result, the Board authorised the repurchase of 9,953,633 shares into Treasury in its effort to stabilise the discount. These share repurchases have benefited remaining shareholders as the NAV per share has been increased by purchasing shares at a discount. Since the end of the reporting period and as at the date of this report, the Board has continued to operate its discount management policy and the Company has repurchased a further 12,057,461 shares into Treasury.

Ongoing Charge
The Ongoing Charge (the costs of running the Company) for the six months ended 30 September 2022 was 0.97% (31 March 2022: 0.94%). The variable element of the management fee was a charge of 0.20% (31 March 2022: 0.20%). Therefore, the Ongoing Charge including the variable element for the reporting period was 1.17% (31 March 2022: 1.14%).

Board of Directors
As part of the Board’s succession plan, Nicholas Bull retired as Chairman of the Board at the conclusion of the Annual General Meeting (“AGM”) on 20 July 2022. Mike Balfour succeeded him as Chairman of the Board on the same date. As Mr Balfour was the Chairman of the Audit and Risk Committee, Alastair Bruce succeeded him in that role at the same time.

The Board appointed Georgina Field as a non-executive Director on 1 July 2022 and she was subsequently elected by shareholders at the AGM on 20 July 2022.

Linda Yueh will step down from the Board as non-executive Director and Senior Independent Director on 31 December 2022. As her replacement as a non-executive Director, Edward Tse has been appointed to the Board with effect from 24 November 2022. Vanessa Donegan will take over the role of Senior Independent Director from Dr Yueh from 1 January 2023.

Principal and Emerging Risks
The Board, with the assistance of the Manager (FIL Investments Services (UK) Limited), has developed a risk matrix which, as part of the risk management and internal controls process, identifies the key existing and emerging risks and uncertainties faced by the Company.

The Board considers that the principal risks and uncertainties faced by the Company continues to fall into the following risk categories: geopolitical; regulatory and capital markets; economic (including pandemic risk); business continuity; investment performance (including gearing); unlisted securities; market and currency; discount (including investors’ perception of China); environmental, social and governance (ESG) and climate; and people risks. Other risks facing the Company include tax and regulatory and operational (third party service providers) risks. Information on each of these risks is given in the Strategic Report section of the Annual Report for the year ended 31 March 2022 which can be found on the Company’s pages of the Manager’s website at www.fidelity.co.uk/china.

While the principal risks and uncertainties are the same as those at the last year end, the uncertainty continues to be heightened by the ongoing Russia and Ukraine conflict, continuing tensions between China and the US, Western sanctions on China on capital and trade flows, the impact of China’s zero COVID policy on economic activity, and the economic outlook continues to remain challenging. The quantum of risks has changed, and continues to change. The Board remains vigilant in monitoring the risks.

A key emerging issue is climate change. It is one of the most critical emerging issues confronting asset managers and their investors. The Board notes that the Manager has integrated ESG considerations, including climate change, into the Company’s investment process. The Board will continue to monitor how this may impact the Company as a risk, the main risk being the impact on investment valuations. Another emerging risk is regulatory risk and the ability of China’s centralised government to enact regulation swiftly that may impact the stock markets negatively and its knock on impact on the Company’s portfolio and net asset value.

Investors should be prepared for market fluctuations and remember that holding shares in the Company should be considered to be a long-term investment. Risks are somewhat mitigated by the investment trust structure of the Company which means that no forced sales need to take place to deal with any redemptions. Therefore, investments in the Company’s portfolio can be held over a longer time horizon.

The Manager has appropriate business continuity and operational plans in place to ensure the continued provision of services, including investment team key activities, including those of portfolio managers, analysts and trading/support functions. It reviews its operational resilience strategies on an ongoing basis and continues to take all reasonable steps in meeting its regulatory obligations and to assess operational risks, the ability to continue operating and the steps it needs to take to serve and support its clients, including the Board.

The Company’s other third party service providers also have similar measures to ensure that business disruption is kept to a minimum.

Transactions with the Manager and Related Parties
The Manager has delegated the Company’s investment management to FIL Investment Management (Hong Kong) Limited and the role of company secretary to FIL Investments International. Transactions with the Manager and related party transactions with the Directors are disclosed in Note 15 to the Financial Statements below.

Going Concern Statement
The Directors have considered the Company’s investment objective, risk management policies, liquidity risk, credit risk, capital management policies and procedures, the nature of its portfolio and its expenditure and cash flow projections. The Directors, having considered the liquidity of the Company’s portfolio of investments (being mainly securities which are readily realisable), the projected income and expenditure and the loan facility agreement, are satisfied that the Company is financially sound and has adequate resources to meet all of its liabilities and ongoing expenses and can continue in operational existence for a period of at least twelve months from the date of this Half-Yearly Report.

This conclusion also takes into account the Board’s assessment of the ongoing risks from the pandemic and evolving variants, the war in Ukraine, significant market events and regulatory changes in China.

Accordingly, the Financial Statements of the Company have been prepared on a going concern basis.

BY ORDER OF THE BOARD
FIL INVESTMENTS INTERNATIONAL
30 November 2022

DIRECTORS’ RESPONSIBILITY STATEMENT

The Disclosure and Transparency Rules (“DTR”) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.

The Directors confirm to the best of their knowledge that:

a) the condensed set of Financial Statements contained within this Half-Yearly Report has been prepared in accordance with the International Accounting Standards 34: Interim Financial Reporting; and

b) the Portfolio Manager’s Half-Yearly Review and the Interim Management Report above, include a fair review of the information required by DTR 4.2.7R and 4.2.8R.

The Half-Yearly Report has not been audited or reviewed by the Company’s Independent Auditor.

The Half-Yearly Report was approved by the Board on 30 November 2022 and the above responsibility statement was signed on its behalf by Mike Balfour, Chairman.

FINANCIAL STATEMENTS

INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2022

		Six months ended 30 September 2022 unaudited			Year ended 31 March 2022 audited			Six months ended 30 September 2021 unaudited
	Notes	Revenue £000	Capital £000	Total £000	Revenue £000	Capital £000	Total £000	Revenue £000	Capital £000	Total £000
Revenue
Investments income	4	27,786	–	27,786	29,638	–	29,638	26,069	–	26,069
Derivative income	4	9,925	–	9,925	11,595	–	11,595	10,815	–	10,815
Other income	4	145	–	145	42	–	42	15	–	15
		---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------
Total income		37,856	–	37,856	41,275	–	41,275	36,899	–	36,899
		=========	=========	=========	=========	=========	=========	=========	=========	=========
Losses on investments at fair value through profit or loss		–	(52,166)	(52,166)	–	(603,831)	(603,831)	–	(323,838)	(323,838)
Losses on derivative instruments		–	(88,129)	(88,129)	–	(160,189)	(160,189)	–	(59,921)	(59,921)
Foreign exchange gains on other net assets		–	13,614	13,164	–	1,429	1,429	–	1,316	1,316
Foreign exchange losses on bank loans		–	(13,800)	(13,800)	–	(3,569)	(3,569)	–	(1,771)	(1,771)
		---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------
Total Income and losses		37,856	(140,481)	(102,625)	41,275	(776,160)	(724,885)	36,899	(384,214)	(347,315)
		=========	=========	=========	=========	=========	=========	=========	=========	=========
Expenses
Investment management fee	5	(1,544)	(6,002)	(7,546)	(3,984)	(15,659)	(19,643)	(2,179)	(8,600)	(10,779)
Operating expenses		(486)	–	(486)	(1,393)	(25)	(1,418)	(732)	(12)	(744)
		---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------
Profit/(loss) before finance costs and taxation		35,826	(146,483)	(110,657)	35,898	(781,844)	(745,946)	33,988	(392,826)	(358,838)
Finance costs	6	(1,256)	(3,770)	(5,026)	(1,663)	(4,989)	(6,652)	(1,067)	(3,202)	(4,269)
		---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------
Profit/(loss) before taxation		34,570	(150,253)	(115,683)	34,235	(786,833)	(752,589)	32,921	(396,028)	(363,107)
Taxation	7	(1,476)	433	(1,043)	(1,186)	–	(1,186)	(1,579)	448	(1,131)
		---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------	---------------
Profit/(loss) after taxation for the period		33,094	(149,820)	(116,726)	33,049	(786,833)	(753,784)	31,342	(395,580)	(364,238)
		=========	=========	=========	=========	=========	=========	=========	=========	=========
Earnings/(loss) per ordinary share (share)	8	6.45p	(29.22p)	(22.77p)	6.42p	(152.81p)	(146.39p)	6.08p	(76.74p)	(70.66p)
		=========	=========	=========	=========	=========	=========	=========	=========	=========

The Company does not have any income or expenses that are not included in the profit/(loss) after taxation for the period. Accordingly, the profit/(loss) after taxation for the period is also the total comprehensive income for the period and no separate Statement of Comprehensive Income has been presented.

The total column of this statement represents the Income Statement of the Company. The revenue and capital columns are supplementary and presented for information purposes as recommended by the Statement of Recommended Practice issued by the AIC.

All the profit/(loss) and total comprehensive income is attributable to the equity shareholders of the Company. There are no minority interests.

No operations were acquired or discontinued in the period and all items in the above statement derive from continuing operations.

STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2022

	Notes	Share capital £000	Share premium account £000	Capital redemption reserve £000	Other reserve £000	Capital reserves £000	Revenue reserve £000	Total equity £000
Six months ended 30 September 2022 (unaudited)
Total equity at 31 March 2022		5,710	211,569	917	244,043	889,958	48,424	1,400,621
Repurchase of ordinary shares	13	–	–	–	(23,532)	–	–	(23,532)
(Loss)/profit after taxation for the period		–	–	–	–	(149,820)	33,094	(116,726)
Dividend paid to shareholders	9	–	–	–	–	–	(28,240)	(28,240)
		---------------	---------------	---------------	---------------	---------------	---------------	---------------
Total equity at 30 September 2022		5,710	211,569	917	220,511	740,138	53,278	1,232,123
		=========	=========	=========	=========	=========	=========	=========
Year ended 31 March 2022 (audited)
Total equity at 31 March 2021		5,710	211,569	917	248,491	1,676,791	39,499	2,182,977
Repurchase of ordinary shares	13	–	–	–	(4,448)	–	–	(4,448)
(Loss)/profit after taxation for the year		–	–	–	–	(786,833)	33,049	(753,784)
Dividend paid to shareholders	9	–	–	–	–	–	(24,124)	(24,124)
		---------------	---------------	---------------	---------------	---------------	---------------	---------------
Total equity at 31 March 2022		5,710	211,569	917	244,043	889,958	48,424	1,400,621
		=========	=========	=========	=========	=========	=========	=========
Six months ended 30 September 2021 (unaudited)
Total equity at 31 March 2021		5,710	211,569	917	248,491	1,676,791	39,499	2,182,977
Repurchase of ordinary shares	13	–	–	–	(1,388)	–	–	(1,388)
(Loss)/profit after taxation for the period		–	–	–	–	(395,580)	31,342	(364,238)
Dividend paid to shareholders	9	–	–	–	–	–	(24,124)	(24,124)
		---------------	---------------	---------------	---------------	---------------	---------------	---------------
Total equity at 30 September 2021		5,710	211,569	917	247,103	1,281,211	46,717	1,793,227
		=========	=========	=========	=========	=========	=========	=========

BALANCE SHEET AS AT 30 SEPTEMBER 2022
Company number 7133583

	Notes	30.09 22 unaudited £000	31.03.22 audited £000	30.09.21 unaudited £000
Non-current assets
Investments at fair value through profit or loss	10	1,256,604	1,365,485	1,775,879
		---------------	---------------	---------------
Current assets
Derivative instruments	10	15,978	23,994	15,652
Amounts held at futures clearing houses and brokers		66,612	32,220	27,431
Other receivables	11	44,391	14,204	32,428
Cash at bank		11,551	73,673	53,778
		---------------	---------------	---------------
		138,532	144,091	129,289
		=========	=========	=========
Current liabilities
Derivative instruments	10	(34,150)	(17,524)	(26,713)
Bank loan		(89,843)	(76,043)	–
Other payables	12	(37,900)	(15,388)	(10,983)
Bank overdraft		(1,120)	–	–
		---------------	---------------	---------------
		(163,013)	(108,955)	(37,696)
		=========	=========	=========
Net current (liabilities)/assets		(24,481)	35,136	91,593
		=========	=========	=========
Total assets less current liabilities		1,232,123	1,400,621	1,867,472
		=========	=========	=========
Non-current liabilities
Bank loan		–	–	(74,245)
		---------------	---------------	---------------
Net assets		1,232,123	1,400,621	1,793,227
		=========	=========	=========
Equity attributable to equity shareholders
Share capital	13	5,710	5,710	5,710
Share premium account		211,569	211,569	211,569
Capital redemption reserve		917	917	917
Other reserve		220,511	244,043	247,103
Capital reserve		740,138	889,958	1,281,211
Revenue reserve		53,278	48,424	46,717
		---------------	---------------	---------------
Total equity		1,232,123	1,400,621	1,793,227
		=========	=========	=========
Net asset value per ordinary share	14	244.47p	272.52p	348.18p
		=========	=========	=========

CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2022

	Six months ended 30 September 2022 unaudited £000	Year ended 31 March 2022 audited £000	Six months ended 30 September 2021 unaudited £000
Operating activities
Cash inflow from investment income	24,344	26,752	22,289
Cash inflow from derivative income	9,648	11,481	9,511
Cash inflow from other income	145	42	15
Cash outflow from Directors’ fees	(95)	(181)	(91)
Cash outflow from other payments	(8,143)	(21,626)	(11,729)
Cash outflow from the purchase of investments	(215,661)	(733,693)	(443,154)
Cash outflow from the purchase of derivatives	(3,966)	(4,095)	(710)
Cash outflow from the settlement of derivatives	(215,801)	(549,387)	(282,358)
Cash inflow from the sale of investments	231,473	936,723	509,023
Cash inflow from the settlement of derivatives	189,426	387,497	219,747
Cash outflow from amounts held at futures clearing houses and brokers	(34,392)	(12,348)	(7,559)
	---------------	---------------	---------------
Net cash (outflow)/inflow from operating activities before servicing of finance	(23,022)	41,165	14,984
	=========	=========	=========
Financing activities
Cash outflow from bank loan, collateral and overdraft interest paid	(1,190)	(2,009)	(979)
Cash outflow from CFD interest paid	(2,741)	(3,037)	(1,320)
Cash outflow from short CFD dividends paid	(254)	(1,707)	(1,716)
Cash outflow from the repurchase of ordinary shares	(21,409)	(4,448)	(787)
Cash outflow from dividends paid to shareholders	(28,240)	(24,124)	(24,124)
	---------------	---------------	---------------
Cash outflow from financing activities	(53,834)	(35,325)	(28,926)
	=========	=========	=========
(Decrease)/increase in cash at bank	(76,856)	5,840	(13,942)
Cash at bank at the start of the period	73,673	66,404	66,404
Effect of foreign exchange movements	13,614	1,429	1,316
	---------------	---------------	---------------
Cash at bank at the end of the period	10,431	73,673	53,778
	=========	=========	=========
Represented by:
Cash at bank	11,551	73,673	53,778
Bank overdraft	(1,120)	–	–
	---------------	---------------	---------------
	10,431	73,673	53,778
	=========	=========	=========

NOTES TO THE FINANCIAL STATEMENTS

1 PRINCIPAL ACTIVITY
Fidelity China Special Situations PLC is an Investment Company incorporated in England and Wales with a premium listing on the London Stock Exchange. The Company’s registration number is 7133583, and its registered office is Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey KT20 6RP. The Company has been approved by HM Revenue & Customs as an Investment Trust under Section 1158 of the Corporation Tax Act 2010 and intends to conduct its affairs so as to continue to be approved.

2 PUBLICATION OF NON-STATUTORY ACCOUNTS
The Financial Statements in this Half-Yearly Report have not been audited or reviewed by the Company’s Independent Auditor and do not constitute statutory accounts as defined in section 434 of the Companies Act 2006 (the “Act”). The financial information for the year ended 31 March 2022 is extracted from the latest published Financial Statements of the Company. Those Financial Statements were delivered to the Registrar of Companies and included the Independent Auditor’s Report which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Act.

3 ACCOUNTING POLICIES
(i) Basis of Preparation
These Half-Yearly Financial Statements have been prepared in accordance with UK-adopted International Accounting Standard 34: Interim Financial Reporting and use the same accounting policies as set out in the Company’s Annual Report and Financial Statements for the year ended 31 March 2022. Those Financial Statements were prepared in accordance with UK-adopted International Accounting Standards (“IFRS”) in conformity with the requirements of the Companies Act 2006, IFRIC interpretations and, as far as it is consistent with IFRS, the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (“SORP”) issued by the Association of Investment Companies (“AIC”) in April 2021.

The AIC updated the SORP in July 2022. The Directors have sought to prepare these Half-Yearly Financial Statements in accordance with this SORP where the recommendations are consistent with IFRS.

(ii) Going Concern
The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of approval of these Financial Statements. Accordingly, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing these Financial Statements. This conclusion also takes into account the Board’s assessment of the ongoing risks as disclosed in the Going Concern Statement above.

4 INCOME

	Six months ended 30.09.22 unaudited £000	Year ended 31.03.22 audited £000	Six months ended 30.09.21 unaudited £000
Investment Income
Overseas dividends	27,030	28,632	25,063
Overseas scrip dividends	756	1,006	1,006
	---------------	---------------	---------------
	27,786	29,638	26,069
	=========	=========	=========
Derivative Income
Dividends received on long CFDs	9,849	11,483	10,764
Interest received on CFDs	76	112	51
	---------------	---------------	---------------
	9,925	11,595	10,815
	=========	=========	=========
Other Income
Interest received on collateral and deposits	145	42	15
	---------------	---------------	---------------
Total Income	37,856	41,275	36,899
	=========	=========	=========

No special dividends have been recognised in capital during the period (year ended 31 March 2022: £nil and six months ended 30 September 2021: £nil).

5 INVESTMENT MANAGEMENT FEES

	Revenue £000	Capital £000	Total £000
Six months ended 30 September 2022 (unaudited)
Investment management fee – base	1,544	4,632	6,176
Investment management fee – variable	–	1,370	1,370
	---------------	---------------	---------------
	1,544	6,002	7,546
	=========	=========	=========
Year ended 31 March 2022 (audited)
Investment management fee – base	3,984	11,953	15,937
Investment management fee – variable	–	3,706	3,706
	---------------	---------------	---------------
	3,984	15,659	19,643
	=========	=========	=========
Six months ended 30 September 2021 (unaudited)
Investment management fee – base	2,179	6,537	8,716
Investment management fee – variable	–	2,063	2,063
	---------------	---------------	---------------
	2,179	8,600	10,779
	=========	=========	=========

FIL Investment Services (UK) Limited (a Fidelity group company) is the Company’s Alternative Investment Fund Manager (“the Manager”) and has delegated portfolio management to FIL Investment Management (Hong Kong) Limited (“the Investment Manager”).

The base investment management fee is charged at an annual rate of 0.90% on the first £1.5 billion of net assets, reducing to 0.70% of net assets over £1.5 billion. In addition, there is a +/-0.20% variable fee based on the Company’s NAV per share performance relative to the Company’s Benchmark Index measured daily over a three year rolling basis. In the event of outperformance against the Benchmark Index, the maximum fee that the Company would pay overall is 1.10% on net assets up to £1.5 billion and reducing to 0.90% on net assets over £1.5 billion. If the Company underperforms, then the overall fee can fall as low as 0.70% on net assets up to £1.5 billion, reducing to 0.50% on net assets over £1.5 billion. Fees are payable monthly in arrears and are calculated on a daily basis.

The base investment management fee has been allocated 75% to capital reserve in accordance with the Company’s accounting policies.

6 FINANCE COSTS

	Revenue £000	Capital £000	Total £000
Six months ended 30 September 2022 (unaudited)
Interest paid on bank loan, collateral and overdrafts	309	927	1,236
Interest paid on CFDs	884	2,652	3,536
Dividends paid on short CFDs	63	191	254
	---------------	---------------	---------------
	1,256	3,770	5,026
	=========	=========	=========
Year ended 31 March 2022 (audited)
Interest paid on bank loan, collateral and overdrafts	505	1,516	2,021
Interest paid on CFDs	731	2,193	2,924
Dividends paid on short CFDs	427	1,280	1,707
	---------------	---------------	---------------
	1,663	4,989	6,652
	=========	=========	=========
Six months ended 30 September 2021 (unaudited)
Interest paid on bank loan, collateral and overdrafts	246	739	985
Interest paid on CFDs	392	1,176	1,568
Dividends paid on short CFDs	429	1,287	1,716
	---------------	---------------	---------------
	1,067	3,202	4,269
	=========	=========	=========

Finance costs have been allocated 75% to capital reserve in accordance with the Company’s accounting policies.

7 TAXATION

	Revenue £000	Capital £000	Total £000
Six months ended 30 September 2022 (unaudited)
UK corporation tax	433	(433)	–
Overseas taxation charge	1,043	–	1,043
	---------------	---------------	---------------
Taxation charge for the period	1,476	(433)	1,043
	=========	=========	=========
Year ended 31 March 2022 (audited)
UK corporation tax	–	–	–
Overseas taxation charge	1,186	–	1,186
	---------------	---------------	---------------
Taxation charge for the period	1,186	–	1,186
	=========	=========	=========
Six months ended 30 September 2021 (unaudited)
UK corporation tax	448	(448)	–
Overseas taxation charge	1,131	–	1,131
	---------------	---------------	---------------
Taxation charge for the period	1,579	(448)	1,131
	=========	=========	=========

8 EARNINGS/(LOSS) PER ORDINARY SHARE

	Six months ended 30.09.22 unaudited	Year ended 31.03.22 audited	Six months ended 30.09.21 unaudited
Revenue earnings per ordinary share	6.45p	6.42p	6.08p
Capital loss per ordinary share	(29.22p)	(152.81p)	(76.74p)
	---------------	---------------	---------------
Total loss per ordinary share	(22.77p)	(146.39p)	(70.66p)
	=========	=========	=========

The earnings/(loss) per ordinary share is based on the profit/(loss) after taxation for the period divided by the weighted average number of ordinary shares held outside of Treasury during the period, as shown below:

	£000	£000	£000
Revenue profit after taxation for the period	33,094	33,049	31,342
Capital loss after taxation for the period	(149,820)	(786,833)	(395,580)
	---------------	---------------	---------------
Total loss after the taxation for the period	(116,726)	(753,784)	(364,238)
	=========	=========	=========

	Number	Number	Number
Weighted average number of ordinary shares held outside of Treasury	512,714,728	514,922,357	515,457,308
	=========	=========	=========

9 DIVIDEND PAID TO SHAREHOLDERS

	Six months ended 30.09.22 unaudited £000	Year ended 31.03.22 audited £000	Six months ended 30.09.21 unaudited £000
Dividend of 5.50 pence per ordinary share paid for the year ended 31 March 2022	28,240	–	–
Dividend of 4.68 pence per ordinary share paid for the year ended 31 March 2021	–	24,124	24,124
	---------------	---------------	---------------
	28,240	24,124	24,124
	=========	=========	=========

No dividend has been declared for the six months ended 30 September 2022 (six months ended 30 September 2021: £nil).

10 FAIR VALUE HIERARCHY
The Company is required to disclose the fair value hierarchy that classifies its financial instruments measured at fair value at one of three levels, according to the relative reliability of the inputs used to estimate the fair values.

Classification	Input
Level 1	Valued using quoted prices in active markets for identical assets
Level 2	Valued by reference to inputs other than quoted prices included in level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly
Level 3	Valued by reference to valuation techniques using inputs that are not based on observable market data

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset. The valuation techniques used by the Company are as disclosed in the Company’s Annual Report for the year ended 31 March 2022 (Accounting Policies Notes 2 (l) and 2 (m) on pages 71 and 72). The table below sets out the Company’s fair value hierarchy:

30 September 2022 (unaudited)	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Financial assets at fair value through profit or loss
Investments	981,880	45,681	229,043	1,256,604
Derivative instrument assets	8,453	7,525	–	15,978
	---------------	---------------	---------------	---------------
	990,333	53,206	229,043	1,272,582
	=========	=========	=========	=========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities	–	(32,930)	(1,220)	(34,150)
	---------------	---------------	---------------	---------------
Financial liabilities at fair value
Bank loan	–	(89,421)	–	(89,421)
	=========	=========	=========	=========

31 March 2022 (audited)	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Financial assets at fair value through profit or loss
Investments	1,103,568	67,267	194,650	1,365,485
Derivative instrument assets	2,843	21,151	–	23,994
	---------------	---------------	---------------	---------------
	1,106,411	88,418	194,650	1,389,479
	=========	=========	=========	=========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities	(2,391)	(15,133)	–	(17,524)
	---------------	---------------	---------------	---------------
Financial liabilities at fair value
Bank loan	–	(75,897)	–	(75,897)
	=========	=========	=========	=========

30 September 2021 (unaudited)	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Financial assets at fair value through profit or loss
Investments	1,492,804	69,754	213,321	1,775,879
Derivative instrument assets	87	15,565	–	15,652
	---------------	---------------	---------------	---------------
	1,492,891	85,319	213,321	1,791,531
	=========	=========	=========	=========
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities	(1,706)	(25,007)	–	(26,713)
	---------------	---------------	---------------	---------------
Financial liabilities at fair value
Bank loan	–	(75,582)	–	(75,582)
	=========	=========	=========	=========

The table below sets out the movements in level 3 investments during the period:

	30.09.22 unaudited £000	31.03.22 audited £000	30.09.21 unaudited £000
Level 3 investments at the beginning of the period	194,650	166,464	166,464
Purchases at cost	–	35,153	35,153
Transfers into level 3 at cost¹	–	–	2,268
Transfers out of level 3 at cost²	(9,971)	(26,330)	–
Unrealised profits recognised in the Income Statement	44,364	19,363	9,436
	---------------	---------------	---------------
Level 3 investments at the end of the period	229,043	194,650	213,321
	=========	=========	=========

1 Financial instruments are transferred into level 3 on the date they are suspended, delisted or when they have not traded for thirty days.

2 Financial instruments are transferred out of level 3 when they become listed.

The increase in level 3 investments at the end of the period to 30 September 2022, is mainly due to the rise in the value of Pony.ai by £20,587,000 along with the strength of the US dollar.

No income has been recognised from the unlisted investments during the period (year ended 31 March 2022 and six months ended 30 September 2021: £nil). No additional disclosures have been made in respect of the unlisted investments as the underlying financial information is not publicly available.

11 OTHER RECEIVABLES

	30.09.22 unaudited £000	31.03.22 audited £000	30.09.21 unaudited £000
Amounts receivable on settlement of derivatives	639	12,924	21,835
Securities sold for future settlement	40,746	80	7,331
Accrued income	2,691	794	2,932
Taxation recoverable	225	202	203
Other receivables	90	204	127
	---------------	---------------	---------------
	44,391	14,204	32,428
	=========	=========	=========

12 OTHER PAYABLES

	30.09.22 unaudited £000	31.03.22 audited £000	30.09.21 unaudited £000
Amounts payable on settlement of derivatives	31,855	10,994	4,770
Securities purchased for future settlement	1,213	2,206	2,697
Investment management fees payable	1,206	1,307	1,617
Accrued expenses	551	724	780
Amounts payable for repurchase of shares	2,123	–	601
Finance costs payable	952	157	518
	---------------	---------------	---------------
	37,900	15,388	10,983
	=========	=========	=========

13 SHARE CAPITAL

	30 September 2022 unaudited		31 March 2022 audited		30 September 2021 unaudited
	Number of shares	£000	Number of shares	£000	Number of shares	£000
Issued, allotted and fully paid
Ordinary shares of 1 pence each held outside of Treasury
Beginning of the period	513,957,409	5,140	515,463,483	5,155	515,463,483	5,155
Ordinary shares repurchased into Treasury	(9,953,633)	(100)	(1,506,074)	(15)	(440,000)	(4)
	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------
End of the period	504,003,776	5,040	513,957,409	5,140	515,023,483	5,151
	==========	==========	==========	==========	==========	==========
Ordinary shares of 1 pence each held in Treasury*
Beginning of the period	57,097,071	570	55,590,997	555	55,590,997	555
Ordinary shares repurchased into Treasury	9,953,633	100	1,506,074	15	440,000	4
	-----------------	-----------------	-----------------	-----------------	-----------------	-----------------
End of the period	67,050,704	670	57,097,071	570	56,030,997	559
	==========	==========	==========	==========	==========	==========
Total share capital		5,710		5,710		5,710
		==========		==========		==========

* The ordinary shares held in Treasury carry no rights to vote, to receive a dividend or to participate in a winding up of the Company.

During the period, the Company repurchased 9,953,633 (year ended 31 March 2022: 1,506,074 and six months ended 30 September 2021: 440,000) ordinary shares and held them in Treasury. The cost of repurchasing these shares of £23,532,000 (year ended 31 March 2022: £4,448,000 and six months ended 30 September 2021: £1,388,000) was charged to the other reserve.

14 NET ASSET VALUE PER ORDINARY SHARE
The calculation of the net asset value per ordinary share is based on the following:

	30.09.22 unaudited	31.03.22 audited	30.09.21 unaudited
Net assets	£1,232,123,000	£1,400,621,000	£1,793,227,000
Ordinary shares held outside of Treasury	504,003,776	513,957,409	515,023,483
Net asset value per ordinary share	244.47p	272.52p	348.18p
	============	============	============

It is the Company’s policy that shares held in Treasury will only be reissued at net asset value per ordinary share or at a premium to net asset value per ordinary share and, therefore, shares held in Treasury have no dilutive effect.

15 TRANSACTIONS WITH THE MANAGERS AND RELATED PARTIES
FIL Investment Services (UK) Limited is the Company’s Alternative Investment Fund Manager and has delegated portfolio management to FIL Investment Management (Hong Kong) Limited. Both companies are Fidelity group companies.

Details of the current fee arrangements are given in Note 5 above. During the period, management fees of £7,546,000 (year ended 31 March 2022: £19,643,000 and six months ended 30 September 2021: £10,779,000) were payable to the Manager. Fidelity also provides the Company with marketing services. The total amount payable for these services was £58,000 (year ended 31 March 2022: £264,000 and six months ended 30 September 2021: £117,000). Amounts payable at the Balance Sheet date are included in other payables and are disclosed in Note 12 above.

At the date of this report, the Board consisted of six non-executive Directors all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company.

The Chairman receives an annual fee of £48,000, the Chairman of the Audit and Risk Committee receives an annual fee of £40,000, the Senior Independent Director receives an annual fee of £38,000 and each other Director receives an annual fee of £31,650. The following members of the Board hold ordinary shares in the Company at the date of this report: Mike Balfour 65,000 shares, Alastair Bruce 43,800 shares, Vanessa Donegan 10,000 shares, Georgina Field 2,250 shares, Edward Tse nil shares and Linda Yueh 2,318 shares.

The financial information contained in this Half-Yearly Results Announcement does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 30 September 2022 and 30 September 2021 has not been audited or reviewed by the Company’s Independent Auditor.

The information for the year ended 31 March 2022 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies, unless otherwise stated. The report of the Auditor on those financial statements contained no qualification or statement under sections 498(2) or (3) of the Companies Act 2006.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

A copy of the Half-Yearly Report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM

The Half-Yearly Report will also be available on the Company's website at www.fidelity.co.uk/china where up to date information on the Company, including daily NAV and share prices, factsheets and other information can also be found.

FIDELITY CHINA SPECIAL SITUATIONS PLC