The 10 trillion yuan public housing fund "sleeping"

Why is the Housing Provident Fund System Facing Intensive Reforms 30 Years Later?

“Since the beginning of this year, over 30 cities nationwide have optimized housing provident fund-related policies.”

Written by / Ba Jiuling

Late at night, Xiao Zhou was browsing his housing provident fund account while studying the usage rules. As a post-2000s worker who doesn’t need to buy or rent a house locally, he hasn’t used this money, and tens of thousands of yuan are just sitting there, earning only a few dozen yuan in annual interest.

Like many others, Xiao Zhou has considered using the housing provident fund, but he shares the same confusion as many: it’s money in his own account, so why can’t he use it for anything other than housing? Why was the housing provident fund system designed in the first place?

Let’s first look back to the 1990s, a decade before Xiao Zhou was born.

Ineffective Housing Provident Fund

In 1991, in response to the wave of housing commercialization, Shanghai borrowed from Singapore’s provident fund system and took the lead in piloting the housing provident fund system in China, gradually promoting it nationwide. After years of preparation, in 1999, the State Council officially issued the “Regulations on the Management of Housing Provident Funds,” marking the formal establishment of China’s housing provident fund system.

In 1991, Shanghai began the pilot of the housing provident fund system

Image source: Ningbo Housing and Urban-Rural Development

The basic operation method of this system is that every month, both employees and employers contribute a sum of money to the employee’s personal provident fund account. The amount contributed by the employee = base × employee’s provident fund contribution ratio, and the amount contributed by the employer = base × employer’s provident fund contribution ratio, with the base being the employee’s average monthly wage from the previous year, and the ratio being between 5% and 12%.

This deposit accumulates over time and can only be used when purchasing a home. The housing provident fund management center will entrust banks to issue low-interest loans to home buyers. From this, it is clear that the positioning of China’s housing provident fund system is “housing security,” aimed at helping residents, especially low- to middle-income families, establish home-buying capacity through “mandatory savings + low-interest loans.”

It is worth mentioning that this regulation has undergone two amendments in 2002 and 2019, and as an administrative regulation, it has high legal effect and institutional binding force nationwide. Therefore, it also largely determines what local housing provident fund policies can and cannot do.

This constraint has been in place for 27 years, during which time many changes have occurred.

In recent years, the real estate market has entered a stage of stock, with home-buying demand gradually declining. At the same time, as people’s material standards of living improve, their expectations for the housing provident fund have shifted from a singular focus on buying homes to more flexible and diversified expenditures, such as consumption, paying mortgages and rent, supplementing pensions, and covering medical expenses.

However, as a housing security system, although the “Regulations on the Management of Housing Provident Funds” clarify that the provident fund belongs to individual property, it also stipulates that the housing provident fund should be used by employees to purchase, build, renovate, or significantly repair their own residences, and cannot be used for other purposes.

At the same time, in the past, many people worked, consumed, and bought homes in their hometowns, but now, people are frequently moving between different cities, and the demand for “the provident fund to move with people” is becoming increasingly urgent. However, currently, the provident fund is managed by housing provident fund management centers established by each province and autonomous region, operating in isolation from one another, resulting in low efficiency in inter-regional allocation, with large amounts of funds idling in some areas while funds in others are running low.

The result is that some people work and contribute to the provident fund in big cities but face cumbersome procedures when they want to withdraw or transfer their funds to buy a house back in their hometown years later, making the experience of using the fund across cities unsatisfactory.

The interest rate advantage is also diminishing. More than twenty years ago, a 4% interest rate on the provident fund compared to a 6% commercial loan was quite favorable; today, the two are not much different, both fluctuating around 3%.

As housing prices soar, the loan limits offered by the provident fund also seem inadequate. Taking Shanghai and Beijing as examples, the price of an 80㎡ house exceeds 4 million yuan, but the maximum loan limit for personal provident fund for first-time buyers in both cities is only 1.2 million yuan.

Under multiple constraints, the provident fund system has become “non-essential” for many groups. By 2024, a total of 81.2704 million people in China withdrew from the provident fund, accounting for 46.10% of contributors, meaning that over half of contributors are paying without using the fund.

Image source: Ministry of Finance of the People’s Republic of China

The large amounts of locked-up provident funds are also reflected in the balances: In 2016, the balance of housing provident fund contributions in China was 4.56 trillion yuan; by the end of 2024, this figure had risen to 10.92 trillion yuan.

Due to various factors, discussions on reforms to the housing provident fund system have been frequently mentioned in high-level meetings this year.

At the end of 2025, the Central Economic Work Conference pointed out the need to deepen reforms of the housing provident fund system, marking the first time in the past ten years that the fund has been singled out in conference documents; this year’s Two Sessions saw the government work report state: “Lowering personal housing provident fund loan interest rates” and “Deepening reforms of the housing provident fund system,” marking the first mention of the provident fund in the government work report in 11 years.

Intensive Reforms

High-level guidance, local implementation.

So far, over 30 cities across the country have optimized housing provident fund-related policies.

Overall, these policies have the following characteristics:

First, they expand the uses of the provident fund; second, they make the use of the provident fund more flexible; third, they improve the utility of the provident fund when buying homes; fourth, they make the provident fund more inclusive.

◎ First, enhancing the advantages of the provident fund has been the focus of reforms in various regions, including increasing the upper limit on provident fund loans, lowering provident fund loan interest rates, supporting intergenerational mutual assistance of the provident fund, adjusting the recognition of loan limits, extending the loan term for housing provident funds, and promoting “commercial to provident fund” transitions.

For example, Shanghai has increased the maximum loan limit for the provident fund, with the adjusted maximum loan limits for first and second homes reaching 2.4 million yuan and 2 million yuan respectively, and under certain additional conditions, they can be further increased by 35% to reach 3.24 million yuan;

Fuzhou applies the first-home loan rate to multi-child families purchasing their second self-owned home;

Taiyuan has extended the loan term for housing provident funds, with a maximum of 30 years;

Changde Li County allows home buyers and their spouses to extract the balances from their parents’ and children’s provident fund accounts when their own balances are insufficient for purchasing a home…

Image source: Shanghai Release

◎ Second, to address declining home-buying demand and the narrow use of the provident fund, various regions are working to broaden the channels for using the provident fund, shifting it from a singular “home-buying fund” to a more comprehensive “residential consumption fund.”

For instance, Changchun supports the extraction of provident funds to subsidize property management fees, with a maximum extraction limit of 3000 yuan/year for each unit located in downtown Changchun; in addition, the provident fund can also be used to pay deed tax, install or upgrade elevators, etc.; Fuzhou supports the use of provident funds for home renovation and purchasing garage(s); Chengdu specifies various uses for the provident fund, such as purchasing parking spaces and significant illness withdrawals…

According to an analysis by Xue Qinghe, the future use of the provident fund will be further expanded, mainly covering people’s livelihood purposes such as renting, renovating, heating, retirement, unemployment, childbirth, education, and medical care. However, the use of the provident fund will not extend to daily consumption, as this would deviate from the original design intention of the provident fund system, which is to secure housing.

Wei Yingjie, founder of the Glacier Think Tank, also believes that the housing provident fund addresses housing issues, and deviating from this goal would lose the significance of the system’s design. Therefore, regardless of whether it is feasible for the provident fund to extend to tourism and daily consumption, there are still many aspects that can be improved in terms of housing loans and meeting housing needs.

Citizens are continually consulting and handling business in front of the provident fund window

In addition to shifting the provident fund towards “residential consumption,” there are also suggestions to integrate the provident fund with pension accounts.

For instance, the Beijing News reported that in some cities, trials could be conducted allowing excess provident fund contributions to automatically transfer into pension accounts, and offer differentiated investment options.

Zhang Bo, director of the 58 Anjuke Research Institute, expects that given the individual housing needs have been largely met, in the next 5-10 years, the proportion of funds allowed to be transferred from the provident fund account to the pension account will likely gradually increase to the range of 30%-50%.

Xue Qinghe believes that at the appropriate time, the housing provident fund can be merged into social security accounts, with the social security fund managing and allocating it uniformly; financial commentator Liu Xiaobo indicated that this would be a positive move, but it requires policy support for tax exemptions…

However, Wei Yingjie cautions that this move needs to be approached with caution. He states that the provident fund is personal property that can actually be “cashed out,” whereas personal pensions focus on long-term investment appreciation, and the liquidity differences between the two are significant. After transferring the provident fund into pension accounts, how to withdraw it in the future, and how to withdraw it (which may even involve personal income tax), need to be clarified. Therefore, it is advisable not to rush into launching such a reform proposal if it is not mature.

Regarding issues of insufficient flexibility in the use of the provident fund, some regions have already simplified the processes for transferring and withdrawing the provident fund. For example, Shanghai has optimized the inter-city transfer process, allowing employees to handle transfers online after changing their work city, eliminating the need to travel back and forth between cities to visit windows.

Housing provident fund mobile app

Lawyer Dong Yizhi from Shanghai Zhengce Law Firm and Shanghai real estate opinion leader Bai Xiaojie expect that an important expansion measure for the provident fund reform is to promote cross-regional contributions, withdrawals, and loans, breaking the closed operation status of funds between provinces and cities. In the future, mechanisms for fund allocation may be explored first in city clusters like Beijing-Tianjin-Hebei and the Yangtze River Delta, achieving the basic principle of inter-regional contributions, local use, and mutual assistance of funds.

Dong Yizhi also emphasized achieving “the provident fund moves with people” through technology—using digital means to achieve nationwide data sharing and establishing unified digital accounts, allowing for complete online handling of inter-regional business and enabling cross-province services to be processed together, thereby addressing many practical pain points amid large-scale population movement.

◎ Finally, it is important to mention the inclusivity issue of the provident fund system itself. There are significant differences in provident fund contributions across different cities and types of enterprises, with some professions, such as flexible employment positions, lacking mechanisms for provident fund contributions.

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Image source: Yicai

Therefore, both Wei Yingjie and Liu Xiaobo remind that in future reforms, it is important to enhance the fairness of the provident fund, but consideration must also be given to the operating costs of enterprises. Financial subsidies should be used to raise the provident fund levels for employees in private enterprises; at the same time, contributions to the provident fund by flexible employment groups should fully adhere to the principle of individual voluntariness, and it is necessary to establish a mechanism of “deposit and withdraw at will, with free exit,” to alleviate the “concerns” of this group.

Shenzhen has given the choice to individuals. The “Shenzhen Housing Provident Fund Management Measures,” released in March, clearly state that besides the employer’s contribution ratio, employees can voluntarily increase their personal contribution ratio, with a maximum of 12%; additionally, the new regulations also clarify that flexible employment personnel can contribute to, withdraw, and use the provident fund according to regulations.

Image source: Shenzhen Housing and Urban-Rural Development Bureau

Conclusion

From “can it be used” to “is it good to use,” the road for the provident fund is clearly not yet complete. But the endpoint is to quickly activate and increase the more than 10 trillion yuan of dormant funds in China’s housing provident fund, allowing it to function efficiently.

References:

1. “Central Government ‘Names’ Housing Provident Fund, What Signal Is Being Sent?” People’s Daily, January 2026

2. “2024 National Housing Provident Fund Annual Report,” Ministry of Housing and Urban-Rural Development, Ministry of Finance, People’s Bank of China, May 2025

3. “Major Movements in Housing Provident Fund Reform Expected,” 21st Century Economic Report, January 2026

4. “Connecting ‘Housing and Pension,’ Can Housing Provident Fund Reform Learn from Singapore’s Experience?” Beijing News Commentary, January 2026

Author | Jiang Zihan | Editor | He Mengfei

Chief Editor | He Mengfei | Image Source | VCG, Network

Author’s Statement: Personal opinions, for reference only.