The National Social Security Fund, China's fund of the last resort to plug provincial social security holes, yesterday announced a 2.75 per cent investment return for last year. The meagre earnings amid a global equity slump highlights the risk of equity investment as the fund, so far mostly parked in bank deposits and government bonds, gears up to expand its stock portfolio. The fund's 2.1 billion yuan (about HK$1.97 billion) earnings last year brought accumulated returns in its two-year history to 3.08 billion yuan, state media reported yesterday. Assets under its custody had grown 54.2 per cent to 124.18 billion yuan by the year-end. Most mainland provinces have a social security funding shortfall, with the country's unfunded pension debt estimated at US$850 billion. This has added urgency to Beijing's search for ways to expand the national fund and boost its investment returns. The fund has relied mostly on state appropriations and proceeds from state share sales during overseas offers. Yesterday's reports did not give a breakdown of the fund's investments. Last month, a Ministry of Finance official said about 75 per cent, or 93.8 billion yuan, of the fund's assets was parked in bank deposits, even as the central bank's eight consecutive cuts since 1996 have reduced interest rates to a record low. Another 22 per cent, or 27.3 billion yuan, was invested in state bonds. Efforts to boost its earnings by channelling more money into the domestic stock market picked up steam in December, when the fund named two domestic custodian banks and six domestic fund managers. The fund could invest up to 40 per cent of its holdings in the stock market, although it has yet to reveal a timetable and initial investment scale. With mainland share prices down 34 per cent since mid-2001, analysts expect it to take a tentative approach at first. As its only direct stock investment so far, the national fund forked out 1.26 billion yuan for Sinopec's A-share initial public offering (IPO) in July 2001, only to see the oil giant's share price fall 19 per cent from its IPO level to yesterday's close of 3.42 yuan. Hong Kong's Mandatory Provident Fund invested in Hong Kong dollar bonds earned an average 6.05 per cent return last year, while equity funds booked negative returns.