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1TheroleofthehousingprovidentfundinfinancingaffordablehousingdevelopmentinChinaRodneyHowesAbstractSincetheadoptionoftheopendoorpolicy,theeconomyofChinahasbeengrowingrap-idly.Alongwitheconomicachievement,housingproblemsinmajorcitiesinChinahavere-mainedlargelyunsolved.Underthetraditionalplannedeconomysince1949,allhousingpro-ductionwastheresponsibilityoftheState.Duetothelackoffinance,newhousingproductionhasnotbeenabletokeepupwiththeincreasingurbanpopulation.Urbanhousingreformintroducedin1988proposedastrategyofdevelopingaffordablehousingfortheordinaryhouseholdsthroughtheprivatehousingmarket.Howevertheimple-mentationofsuchastrategyhasencounteredanumberofobstaclesincludingthelackofasecondhandhousingmarket,anundevelopedrealestateprofession,unclearlandandpropertylegislationandanabsenceofproperpropertymanagementsupport.Amidtheseobstacles,thelackofhousingfinancewouldappeartobeatthecoreoftheproblem.Inordertogeneratefundingforhousingdevelopment,theChineseGovernmentintroducedtheHousingProvidentFund(HPF)SchemeinShanghaiin1991.UndertheHPF,allemployeeswererequiredtocontributeaproportionoftheirsalariestoHPFandemployerscontributedasimilaramount.AccountsforindividualworkersweresetupintheConstructionBankofChina.Todaywork-ersareallowedtowithdrawtheirHPFsavingswhentheyretire,alternativelytheycanusetheirHPFsavingstopurchasehomesintheprivatehousingmarket,orfromtheComfortableHousingProjects.HPFisnowimplementedinmostcitiesinChina,althoughtherearesomevariationsintheoperationofScheme.ByusinganempiricalstudyoftheHPFSchemeinShanghai,thispaperreviewstheroleoftheHPFinfinancingaffordablehousingdevelopmentinChina.Keywords:Housingprovidentfund;Housingfinance;Housingpolicy;Shanghai;China21．IntroductionHousingreformhasbeenacrucialcomponentoftheoveralleconomicreformsinurbanChinafromthemid-1980s.Since1949,Chinaasasocialistcountry,hasadoptedawelfarehousingsystemwheretheproduction,allocationandmaintenanceofhousinghasbeentheresponsibilityoftherelevantworkunit.Unlikeamereemployer,theworkunitprovidedal-mostallaspectsofwelfareincludinghousing,medicalcareandeducation.Thisscenariohaschangedinthemid-1980swhenhousingreformwasinitiatedinmajorChinesecities.Asearlyasthelate1970s,Chinadecidedtooptforeconomicreformbypromotingmarketmechanismswithinitssocialistplannedeconomy.Theeconomicreformprogressedwellandgraduallyexpandedtoothernoproductionsectors.Bythemid-1980s,stateenterprises/workunitsbegantoshedtheirwelfareresponsibilitiesandconcentrateonproductionactivities.Acrucialpartofthisdevelopmentwaseconomicreformassociatedwiththeremovalofhousingprovisionasemploymentwelfare.WagesinChinaremainedverylowbecausethegovernmentandworkunitsprovidedheavysubsidiesandsocialwelfaretotheiremployees.Economicreformrequiredthatthesesubsidiesandwelfarecouldbegraduallyabolished.In1998,ZhuRongji,PremieroftheChi-neseStateCouncil,proposedthatthehousingmarketwouldbeapioneersectorintheChineseeconomy.Alongwiththereformofwagestructures,peoplewouldbeprovidedwithbetterpayinexchangefortakingcareoftheirownhousingneeds.AsshowninTable1,theannualactu-alincomepercapitalinShanghaiincreasedthroughoutthe1990sby500%.Thehighestin-comegroupexperienceda700%increaseduringthesameperiod.Theexpectationwasthatthegeneralincreaseintheincomelevelofworkerswouldhelpthemtopurchasetheirownflats,insteadofrelyingontheworkunitsforstaffquarters.Theoutcomeofthesereformschangedhousingfromakindofsocialwelfaretoaprivatecommodity.AseriesofhousingreformpoliciesaimedattransferringtheresponsibilityforhousingprovisionfromtheStatetothemarkethavebeenproposedsince1988.Variousplanswereimplementedtosellhousingunitsownedbythestateenterprisesworkunitsto‘tenants’.However,responseswerenotasgoodasexpected.Thecriticalreasonforthiswasbecauseofamismatchbetweenaffordabilitytourbandwellersandthepricelevelofthecommodityhousing.Inaddition,housingunitswerestillbeingallocatedtotheworkersbystate-ownedenterprises(SOE),whichmadehousingreformmoredifficulttoimplement.Afteryearsofpiecemealurbanhousingreform,theChineseGovernmentadoptedageneralpolicydirectionforurbanhousingreformthatrequiredthetransferofresponsibilityforhousingprovisionfromtheStatetothemarket.Themainfocusinthelate1990swasashifttotheoperationlev-elofprovidingfinancialassistancetothehomebuyers.Theprinciplesassociatedwitha3HousingProvidentFund(HPF)SchemepreviouslyadoptedinSingapore,wereconsideredbytheChineseGovernmentanddeemedtobeapplicabletoChina.2．TheHPFSchemeinurbanChinaInearly1991,theShanghaimunicipalgovernmentestablisheditsownHPFSchemeandsubsequentlyintroduceditshousingreformpolicyinMay,1991.Therewerefivekeypolicymeasuresunderthehousingreformprogram:(a)ImplementtheHPFScheme;(b)Increaserentsandreplacebywagesubsidies;(c)Thosewhowereallocatedhousingwererequiredtopurchasehousingbonds;(d)Tenantscanpurchasestate-ownedhousingatdiscountrates;and(e)Establishhousingcommittees.TheHPFwasadoptedasthecorecomponentoftheoverallhousingreforminShanghaianditprovidedafundamentalandlongtermmeanstomeetthehousingneedsoftheworkerswithoutStatesubsidy.AccordingtotheShanghaiProvidentFundManagementCentre,therewer