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　　Embezzlement on a grand scale is sending shock waves through the Chinese provident fund industry. During 2005, a host of incidents were made public, with several serious cases involving funds of over 100 million yuan ($12.5 million).
　　Recently, Liu Xiangyang, director of Hengyang Housing Provident Fund Center in central China’s Hunan Province, was charged with the embezzlement of 253 million yuan ($32 million), the fourth case of this kind that has involved more than 100 million yuan.
　　
　　
　　In August 2005, Li Shubiao, director of Chenzhou Housing Provident Fund Management Center in Hunan Province was sentenced to death for the embezzlement of 110 million yuan ($13.7 million). In January 2005, a general manager of Aviation Securities’ Baoding Sales Department, together with several local officials, ran off with an entrusted fund of 130 million yuan ($16 million).
　　Apart from these serious cases, the past three years have witnessed many smaller incidents related to the illegal use of housing provident funds. On September 27, 2005, the National Audit Office of the People’s Republic of China revealed several cases of the illegal use of special housing funds. The Housing Fund Management Center, managed by the Government Offices Administration of the State Council, is on their list for investigation.
　　
　　How secure are funds?
　　
　　The high frequency of similar cases has cast shadows on the security of people’s housing provident funds.
　　The housing provident fund system is a policy-based financing channel for the Chinese Government to solve people’s housing problems. The funds are collected monthly from work units and individual salaries, in a set ratio, and then used to help people purchase, build and renovate houses or may be withdrawn from banks after retirement. Under the uniform management of housing provident fund centers, this fund is also available with a lower interest rate than commercial loans. The current housing provident fund system was launched in 1991 when the then mayor of Shanghai, Zhu Rongji, (later premier of China’s State Council), based on the analysis of Singapore’s central provident fund and the housing management system in Hong Kong, gave the order to put this system into practice as a pilot program in Shanghai. Later, Beijing, Tianjin, Jiangsu and Zhejiang began to follow Shanghai’s example and the system took root in China.
　　Statistics from the Ministry of Construction show that by the end of 2004, the national housing provident fund totaled 740 billion yuan ($92.5 billion), administered by more than 340 management centers.
　　However, instead of providing money for house purchases when needed, the funds have been lining the pockets of a string of criminals. According to the Ministry of Construction, an inspection has found that a total of 7 billion yuan ($870 million) of housing provident funds has been used in various illegal projects and loans.
　　“It is problems in the current housing provident system itself that led to many cases of embezzlement and corruption,” said a researcher from the Institute of Economics of the Chinese Academy of Social Sciences.
　　In accordance with Regulations on the Management of Housing Provident Funds, management centers of housing provident funds are only responsible for the collection and value maintenance and appreciation of the fund. The tasks of loan applications, settlements, opening accounts, deposits and repayments are transferred to banks. Nevertheless, in many places, it is not the banks that are taking charge of the above-mentioned tasks, but local management centers. In this way, management centers have actually become financial institutions while entrusted banks are actually nothing more than the cashiers of those centers. Only when you have permission from management centers can you get loans from the provident fund. Almost all the procedures are controlled by the management center, making it easier for centers to make use of the funds for their own purpose.
　　
　　Take the case of Li Shubiao for example. He treated the 600 million ($75 million) housing provident fund in the charge of Chenzhou Housing Provident Fund Management Center as his own private bank account.
　　
　　FACING TRIAL: Li Shubiao, former director of Chenzhou Housing Provident Fund Management Center in Hunan Province, was sentenced to death for the embezzlement of more than 10 million yuan ($1.25 million) in housing provident funds
　　“Whenever he needed money, he was always able to withdraw some from the bank with all kinds of false certificates,” said an insider familiar with the case in the Chenzhou branch of Agriculture Bank of China.
　　Since the Chenzhou branch began to cooperate with Chenzhou Housing Provident Fund Management Center in 2002, opening accounts and depositing money into the housing provident funds have been done by banks. Every time Li Shubiao came to withdraw money, the bank would go through the four necessary procedures: investigation, examination, deliberation and approval, without ever finding any problems. It was later revealed that Li was taking advantage of the funds’ official stamp to withdraw money at will.
　　According to Regulations on Housing Provident Fund Management, local housing provident funds are supervised by financial and auditing departments and also banks at the same level, with local governments’ construction departments playing a leading role. However, it is proved that this kind of supervision can seldom exert influence, as the centers are actually able to do all the auditing and management by themselves and entrusted banks only need to do what the centers tell them to do. Problems of supervising this kind of system are therefore inevitable.
　　In response to increasing the problems related to housing provident funds, the China Banking Regulatory Commission has warned banks to guard against possible outside-account operations. Banks are also asked to impose certain limits on the amount of capital that can be taken out at any one time, together with strict examination and approval procedures. If serious legal cases occur, relevant officials and supervisory departments will be held accountable.
　　
　　Funds not being used
　　
　　Apart from losses resulting from embezzlement, a large amount of housing provident funds is not being used.
　　According to statistics from the Ministry of Construction, by the end of 2004, 61.38 million people had deposited money into the housing provident fund, but only 4.3 million had actually got loans from the fund. This is only 14 percent of the total depositors. By 2004, a total of 250.6 billion yuan ($31 billion) had been withdrawn, with 208.6 billion yuan ($26 billion) remaining untouched.
　　Housing provident funds are more effectively used in Beijing than anywhere else in China. About 96 percent of the funds are made use of, while in other cities, the rate is normally under 35 percent.
　　Statistics from Guangzhou Housing Provident Fund Management Center show that from 1992 to 2002, a total of 15.7 billion yuan ($1.96 billion) had been collected in the city, yet to date 10 billion yuan ($1.25 billion) is still lying unused. The fund collected in southwest China’s Chongqing Municipality amounted to as high as 3.5 billion yuan ($440 million), but only a small fraction of 500 million yuan ($62.5 million) or a paltry 14 percent were used as mortgages.
　　While recent years have seen a house-purchasing boom, why are there still so many funds left unused?
　　Experts believe this is partly related to the limited credit line. During 1996 and 2005, house prices in Shanghai kept soaring, but the credit line of common provident funds remains low. In Shanghai, it stands at 100,000 yuan ($12,500), with plans in place for an increase to 200,000 yuan ($25,000). Credit lines of housing provident funds around the country are different, ranging from tens of thousands to hundreds of thousands of yuan.
　　The complicated and time-consuming procedure is another reason why housing provident funds are left unused.
　　Apart from Beijing and Zhejiang, it’s not that easy to get loans from the fund.
　　According to a report issued by the People’s Bank of China, the most striking problem in housing provident funds is the difficulty in applying for loans and the low credit line, and due to these two reasons, the fund can do little help to workers of medium or low incomes.
　　Ease of access is also seeing people shift across to taking regular bank loans.
　　“In some places, the application procedures for commercial loans prove to be more convenient than fund loans, which has compelled quite a lot of people to turn to commercial loans with higher interest rates,” said Wen Linfeng, Deputy director of the Property Study Division of the Center for Policy Research of the Ministry of Construction.
　　In Lin’s opinion, four major factors have prevented the housing provident fund from playing its role as policy-based preferential loans. First, relatively low house prices in some places make fund loans unnecessary as many house consumers can afford the house through lump-sum payments. As a result, housing provident funds are collected without being fully used. Second, with little awareness of market competition, housing provident fund management centers are no match for commercial loan lenders competing to win real estate developers. Third, while the interest rate of fund loans seems no different from that of commercial loans, the former actually costs consumers more with the various procedures they need to go through. Fourth, as housing provident funds are limited to local citizens, the funds in one city can’t be used to buy a house in another city, leaving money untouched as people move.
　　“Although provisions permit housing provident funds to be used for house building and renovation, few urban citizens can afford to build houses by themselves and various certificates are needed if one is to apply for renovation loans. Therefore few funds are used for these two purposes,” said Wen. In addition, as the housing provident fund is exclusively used for house purchases, those who can’t afford to do so have to keep their money in the fund and withdraw all their deposits when they retire. This actually causes a loss to low-income families because of the low interest rate offered, said Wen.
　　Yin Zhongli, a doctor from the Financial Institute of the Chinese Academy of Social Sciences, believes that as the housing provident fund system is part of China’s housing reform, problems occurring in the fund’s management should be analyzed in the context of the whole housing system. “The root of the problem does not lie in the process of operation or supervision, but in the reform orientation,” Yin said.
　　It’s said that the housing provident fund system is not to be changed in the near future. “What is needed is the improvement of the fund system so as to minimize problems,” said Wen. However, effective supervision of how housing provident funds are used remains the biggest problem.

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