China expands $1.6T housing fund to support home spending

China will broaden access to a 10.9 trillion yuan ($1.6 trillion) housing provident fund to support home-related consumption, Bloomberg News reports. 

Residents will be allowed to withdraw savings for major expenses including renovations under a revised regulation taking effect next month.

Regulators will also ease conditions for using the fund to pay rent. The fund’s management center will be allowed to purchase policy bank bonds for the first time, expanding its investment options and potentially increasing returns.

The changes follow a broad slowdown in China’s economy in July. Consumption weakened more than expected, home prices continued to fall 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. 

The system covered almost 180 million employers and workers and held 10.9 trillion yuan as of 2024, according to official data.

The revised rules allow China’s State Council to decide mortgage lending rates for the fund. Previously, the central bank proposed rate changes that 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 more 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 responded to the policy change. Ten-year yields on China Development Bank bonds fell the most in two months after the government expanded the types of assets the housing fund can purchase.