Baillie Gifford China Growth Trust : Annual report - 31 January 2023

NAV, Share Price and Benchmark Total Return†

(figures rebased to 100 at 31 January 2022)

Share price

NAV

Benchmark*

125

100

75

50

Susan Platts-Martin,

Chair

The 12 months under review has been a volatile and disappointing period for Chinese equities. For the majority of the Company's financial year, the Chinese economy struggled with physical lockdowns resulting from its Zero Covid policy and market sentiment was negatively impacted by regulatory crackdowns, as well as politics and geopolitics. In the last quarter of the Company's financial year, there has been more positive news

to report as China began to reopen earlier and more quickly than expected bringing the timing of the economic recovery forward.

Given travel restrictions to China, in April 2022 the Board met virtually with the Managers' team based in Shanghai engaging with the various individuals on a number of topics relevant to the Company. The 'boots on the ground' in China is a key strength of the Managers that the Board identified early on when considering the change of manager in 2020. The Board were impressed with the calibre of the individuals who are working, alongside the team based in Edinburgh, to identify the best stocks for the Company's portfolio.

During the financial year to 31 January 2023, the Company's net asset value total return, calculated by deducting borrowings at fair value, was -5.7% and the share price total return was -7.9%. This compares with a total return of -2.2% for the MSCI China All Shares Index (in sterling terms).

Over the period from 16 September 2020 (the date of the adoption of the China strategy), the Company's net asset value and share price returned -14.2% and -16.4% respectively compared to a total return of -12.7% for the MSCI China All Shares Index (in sterling terms).

As I noted in my statement last year, the Managers have a long-term investment approach, and we would ask shareholders to judge performance over periods of five years or more. Further information about the Company's portfolio performance is covered by our portfolio managers, Sophie Earnshaw and Roderick Snell, in their Managers' Report.

Discount/Premium and Share Issuance

The Company's share price discount to net asset value at the last financial year end was 4.1%, the Company's share price ended the year at a discount to net asset value of 6.3%.

Unlike the financial year ending 31 January 2022, no shares have been issued by the Company during the period as the shares have predominantly traded at a discount to net asset value.

The discount has been 15.5% at its widest but the shares have also traded at a modest premium of up to 2.9% during the period. The Company has not bought back any shares over the period, though the Board keeps its liquidity policy under close review.

Dividend

Since the adoption of the China strategy and the appointment of Baillie Gifford as Manager in September 2020, the Company's long term returns are now expected to be predominantly generated from capital growth as opposed to income. During the financial year, the revenue return per share increased by 121% from 0.97p to 2.14p.

Last year, being the first complete financial year since the adoption of the China mandate, the Board agreed to match the dividend of the previous financial year and was able to do so given the sizeable reserves of the Company. This year the dividend will reset to a level that is in accordance with the dividend policy of the Company, which is that any dividend paid will be by way of a final dividend and be not less than the minimum required for the Company to maintain its investment trust status.

The Board is proposing a final dividend of 1.7p, which, subject to shareholder approval, will be paid on 26 July 2023, with the shares trading ex-dividend on 22 June 2023.

Ongoing Costs

The ongoing charges figure for the year is 0.94%. Last year, the ongoing charges were 0.72% (and without the fee waiver provided by Baillie Gifford in relation to the first six months of its appointment in September 2020 it would have been 0.81%).

Gearing

In April 2021, the Company entered into a US$40m revolving credit facility with The Royal Bank of Scotland International Limited ('RBSI'). As at 31 January 2023, US$7.5m has been drawn down under the facility, and gearing stood at 2.5%.

Unlisted Investments

The Company holds one unlisted investment, ByteDance, which represented 5.7% of the total assets as at 31 January 2023. The valuation process, which is based on an independent assessment by S&P Global, is set out on page 7.

ESG

The consideration of Environmental, Social and Governance ('ESG') factors is an integral part of the Managers' long-term investment approach. Further details on the Managers' approach can be found on pages 9 to 14.

The Board

The Board welcomed Jonathan Silver to the Board in September 2022 following a search undertaken with the support of an external recruitment consultant. Jonathan is a chartered accountant who has held a number of senior financial positions and sits on other boards including another investment trust.

Andrew Robson is to retire from the Board at the AGM in 2023. The Board extends its thanks to Andrew for his valued contribution. Andrew has been an exemplary Chair of the Audit Committee since his appointment in July 2014 and has acted as senior independent director since June 2021. Jonathan Silver

will take up the position as Chair of the Audit Committee and Magdalene Miller will take over as Senior Independent Director.

As Andrew and I both complete our nine year tenure this summer, the Board considered that it would be appropriate for me to stay on as Chair until 2024 in the interest of continuity given recent changes to the Company's mandate, manager and a number of other Board changes. Our next hire will be for my successor as Chair as I plan to step down in the first half of next year after a suitable handover period. A search is underway supported by an external recruitment consultant and a new appointment to the Board will be announced in due course.

All Directors are subject to annual re-election at the AGM in June. Biographies of each of the Directors can be found on page 27.

Strategic Report

Annual General Meeting

The AGM will be held at 4pm on Thursday, 15 June 2023 at the Institute of Directors, 116 Pall Mall, London. The meeting will be followed by a presentation from the Managers and all shareholders are invited to attend.

I would remind shareholders that they are able to submit proxy voting forms before the applicable deadline on Tuesday, 13 June 2023, and also to direct any questions to the Board or Managers in advance by email to trustenquiries@bailliegifford.com or calling 0800 917 2112 (Baillie Gifford may record your call).

Outlook

China's macroeconomic, regulatory and pandemic policies are looking to align with a pro-growth stance, for the first time in three years. China is likely to be one of the very few major economies where growth could accelerate in 2023, enjoying a re-opening like much of the rest of the world experienced in 2022. In addition and unlike the majority of the world, China is experiencing extremely low inflation (averaging approximately 2% at December 2022).

The rapid re-opening from Zero Covid, the increased household savings and clear domestic policy support for growth for 2023 all point towards the 'need' for a strong recovery. China has a very different development model from the West and it is important to understand the context of the changes happening in China. The Managers Report details the principles to be borne in mind when investing in China. There are several risks, not least geopolitical, where misjudgements notably in respect of Taiwan could lead to severe market disruption. However, whilst China is a market where there is likely to be ongoing short term volatility, the prospects for significant long term growth remain.

Susan Platts-Martin

Chair

4 April 2023