While Chinese workers are increasingly expected to contribute to their own pension insurance arrangements, they can only find investments that yield half as much as inflation.

The government restricts pension fund investment to treasury bonds or bank deposits, which pay around 11 percent interest. Inflation, by contrast, approached 22 percent last year."Lack of a suitable investment vehicle has aggravated pension depreciation," Mr. Shi said. Failure to correct this shortcoming risks jeopardizing the whole plan to create a national pension system, he said.

China collected 70.7 billion yuan ($8.5 billion) in insurance pension contributions last year and paid out 66 billion, leaving an aggregate 29 billion yuan available at the end of the year, government statistics show. The pool of insurance money includes funds left over from prior years.

About 4 billion yuan, or 12 percent, of that pool has been swallowed by inflation, said Shi Mingcai, deputy director of the Ministry of Labor's Social Insurance Administration.

For many years, companies were expected to provide virtually all benefits for their workers, from housing to education for the children to pensions. Many can no longer afford to do so.

There were about 3 million retired people registered in 1978. Government statistics show 30 million now and project 127 million by the end of the decade.

"People with money would rather arrange old-age pensions on their own," Mr. Shi said. That means the state's ability to support the others will steadily decrease, he said.

Pooling of wages to prepare for old age is being pushed, with mandatory deductions from employees of state-owned firms and personal pension accounts for workers.

Inflation-protected interest is available for individual deposits, but not for state firms or pension funds.

A ministry call for the government to craft a treasury bond offering interest high enough to take the sting out of inflation resulted this year in a five-year bond at 15.86 percent. Most big cities and provinces are still recording inflation above 15 percent, the government's target for this year.

Pension funds were urged last month to be bolder with investment rather than routinely sticking money into banks or buying bonds at fixed interest.

Han Liangcheng, director of the social insurance administration, said funds ''should explore diversified investments in stocks, warrants, funds, corporate debentures, trust loans and real estate."

He outlined three criteria for effective investment:

* Whether fund management institutions have decision-making power and management ability.

* Whether the country's macroeconomic situation is stable or there are opportunities.

* Whether the country has financial markets and vehicles for investments.

Mr. Han said conditions "are now turning right for pension funds to select more investment channels."

Fund management companies have been launched by both the central government and local authorities. They "have accumulated experience and made achievements," he said.

Mr. Han said the chronic shortage of cash for construction provides a ready market for pension funds.

By the end of 1994, pension plans covered most workers in the country, officials say. Some 95 million had unemployment insurance, and 5 million workers and 500,000 retired people had medical cover.