China should take bolder steps toward fine-tuning its housing provident fund system to expand the scope of how the massive pool of capital can be utilized, as part of the country's efforts to stabilize the property market, analysts said.

Their comments come on the heels of the annual Central Economic Work Conference held in mid-December, where policymakers placed "deepening the reform of the housing provident fund system" on its economic agenda for the first time in a decade.

The dedicated fund is a mandated savings program requiring both employees and employers to contribute monthly into a pool that can then be available to finance mortgages, often at lower interest rates than banks.

In late December, the country's top housing regulator also vowed to "better leverage the role of the housing provident fund".

As China's real estate sector continues its ongoing adjustment, the fund has become one of the most frequently deployed instruments in the policy toolbox aimed at stabilizing the market.

The China Index Academy said that in 2025 alone, local and national authorities across China issued more than 630 property-related policy measures. Of these, about 280 — the highest proportion by category — focused on optimizing housing provident fund policies.

The system currently offers an annual interest rate of just 1.5 percent on individual account deposits, said Yan Yuejin, deputy head of Shanghai-based E-House China R&D Institute.

Yan said that if these savings remain untapped for home purchases, their yield significantly lags behind inflation, effectively diminishing their value over time for millions of contributors.

While designed to offer low-cost borrowing alternatives, the maximum loan amount often covers only a fraction of apartment prices in markets like Beijing and Shanghai, Yan said.

Furthermore, the fund's interest rate advantage has narrowed markedly. With commercial mortgage rates having fallen in recent years, the gap between them and provident fund loan rates has shrunk to mere decimal points, Yan said, adding that there remains room to further lower interest rates on housing provident fund loans.

Pan Gongsheng, governor of the country's central bank, said the reduction of housing provident fund loan rates by 0.25 percentage point is expected to save households over 20 billion yuan ($2.87 billion) in annual interest expenses.

The fund's total deposit balance soared from 4.56 trillion yuan in 2016 to 10.9 trillion yuan by the end of 2024, said the Ministry of Housing and Urban-Rural Development.

The scale of this accumulation has drawn attention to whether such a large pool of capital is being used effectively to address housing needs, analysts said.

The ministry said it is exploring ways to optimize housing provident fund management and expand the scope and efficacy of its usage, based on the residential property consumption characteristics of contributors at different life stages.

In parallel, the ministry is advancing pilot programs to include flexible employment workers in the fund's system, aiming to make the system more accessible to a broader range of workers.

Li Yujia, chief researcher at the residential policy research center of the Guangdong Planning Institute, said that in many cities the location where a person pays into the fund, buys a home and holds their household registration must all be the same.

"This prevents the housing provident fund from flowing freely within city clusters and metropolitan areas. It ultimately reduces the efficiency of how this capital allocates resources between jobs and housing."

There are still major constraints involving the process of converting a commercial housing loan into a provident fund loan, Li said, adding that further dismantling such restrictions could emerge as a focus of the national reform of the overall housing provident fund system.

Industry insiders also expect contributors to tap their housing provident fund resources for home upgrades, including renovations in older neighborhoods and elevator installations, as the country pushes forward its urban renewal initiative.