China's national welfare fund expanded nearly 29 percent in value last year to hit US$21 billion at the end of the year, domestic media said Tuesday.

The fund's 2004 revenues were nearly 4.3 billion yuan (US$520 million), with the investment yield rising to 3.1 percent from about 2.7 percent previously, Xinhua quoted fund director Xiang Huaicheng as saying.

The fund also grows through government contributions, but Xinhua did not say how big those were last year.

The largest portion of the fund, nearly US$9.1 billion, was invested in bonds, while another US$8.1 billion was kept as bank deposits, Xinhua said.

Stock market investments accounted for more than US$2.2 billion while US$1.4 billion was in other equity investments, it said. It did not account for the remainder.

Xiang, a former finance minister, pledged to improve the fund's investment returns while putting a priority on risk control, Xinhua said.

"Our risk control policy remains unchanged. There will be no net investment losses in each of the coming five years while striving to raise investment returns," Xiang said.

If the council overseeing the fund decided to grant approval for it to invest overseas, the cap on stock market investments could rise to 20 percent from the current 15 percent, Xiang said.

Domestic media have said the fund could invest up to US$1 billion in the Hong Kong stock markets as an initial step. Xiang also said the fund would invest nearly US$6.3 billion this year.

Nearly US$3.2 billion of that would go towards fixed-income instruments, while US$2.2 billion would be investment in the stock markets.

The fund was set up in 2002 to manage a grossly under-funded pensions system that has been seeking higher returns as the country tries to provide for millions of workers laid off from State companies.

Source: Shenzhen Daily-Agencies