China expands $1.6 trillion housing provident fund to support home spending
Key Takeaways
- •Residents will be allowed to use housing provident fund savings for major expenses such as renovations under revised rules taking effect next month.
- •The rules will also make it easier to use the fund for rent payments.
- •For the first time, the fund’s management center will be permitted to purchase policy bank bonds.
- •The State Council will gain authority to set mortgage lending rates for the fund.
- •China Development Bank ten-year bond yields fell sharply after the policy expansion was announced.
China will broaden access to its 10.9 trillion yuan ($1.6 trillion) housing provident fund to support home-related consumption, Bloomberg News reports. Under a revised regulation taking effect next month, residents will be allowed to withdraw savings for major expenses such as renovations, adding a new channel for spending tied to housing beyond mortgages alone.
Regulators will also loosen the conditions for using the fund to pay rent. In addition, the fund’s management center will be permitted to buy policy bank bonds for the first time, widening its investment options and potentially lifting returns.
The changes come after a broad slowdown in China’s economy in July. Consumption weakened more than expected, home prices continued to decline and Premier Li Qiang called for additional measures to support growth.
China’s housing provident fund requires employers and employees to make monthly contributions that can be used for mortgages, often at lower rates than bank loans. According to official data, the system covered nearly 180 million employers and workers and held 10.9 trillion yuan as of 2024. That scale makes the fund a meaningful part of China’s housing-finance system, especially as policy makers look for tools that can support demand without relying solely on banks.
The revised rules also give China’s State Council the authority to decide mortgage lending rates for the fund. Previously, the central bank proposed rate changes that then required State Council approval.
Analysts at China Index Holdings said the change could provide more flexibility for interest-rate adjustments and would be mildly positive for the housing market. Fund-based home loans are already 0.9 percentage point cheaper than benchmark bank mortgage rates, and borrowers can withdraw savings to repay bank mortgages.
The fund has become increasingly important for home financing as banks face pressure on profits. More than 80 local governments have raised borrowing quotas backed by the fund this year, according to China Index Holdings.
China’s bond market also reacted to the policy shift. Ten-year yields on China Development Bank bonds fell the most in two months after the government expanded the range of assets the housing fund can purchase.