BEIJIGN, Oct. 10 (AP) -- China's state pension fund is preparing to make its first investments abroad, putting up to US$1 billion (€700 million) into foreign financial markets in an effort to improve returns on its reserves, the fund's chief said Tuesday.

The step comes as the 230 billion yuan (US$29 billion; €23 billion) National Social Security Fund tries to expand its resources to cope with the growing demands of China's aging population.

The fund's guidelines allow it to invest up to 20 percent of its assets abroad, or 46 billion yuan (US$5.8 billion; €4.5 billion), said fund chairman Xiang Huaicheng in comments on state television.

The first stage of foreign investments will involve US$800 million-US$1 billion (€550-700 million), but the timing and other details haven't been decided, Xiang said.

Beijing has begun allowing Chinese banks, insurance and other financial companies to invest in foreign financial markets in an effort to improve the return on their assets.

Until recently, they were limited to investing in Chinese stock markets, which are small and subject to wild price swings, or government bonds, which pay low interest.

The pension fund was created in 2000 to finance pensions paid by China's central government, and faces soaring demands in coming years as the number of retirees rises.

China's demographic problem is especially acute because birth-control rules limit most urban families to one child mean. That means that the average age of the population is rising rapidly, and the ratio of working people to retirees will drop sharply in coming years.

On Monday, the pension signed agreements with U.S.-based Northern Trust Corp. and Citigroup Inc. to act as trustees for its foreign investments.

The foreign investment strategies of other national pension systems vary widely. In the United States, the Social Security fund keeps its reserves in government bonds, while other countries such as Singapore have tens of billions of dollars invested abroad.