Management of housing provident funds should be tightened to ensure their healthy development, says an article on the website of Xinhua News Agency. An excerpt follows:

Like pension funds, housing provident funds are closely related to almost every household's interest.

That is because each employee has a "housing" account, whereby a percentage of his/her salary is paid in, plus the same amount again from his/her employer. The employee can only withdraw the money or borrow money from the reserve funds for housing purposes.

The total housing fund nationwide amounted to 489.3 billion yuan (US$59 billion) by the end of last year. Of that, 280.7 billion yuan (US$34 billion) was used for mortgages or to buy State bonds.

Housing funds are managed by 340-odd management centres.

As the housing sector becomes more market-oriented, housing funds are expected to play an increasingly important role in meeting people's housing needs.

However, some loopholes in the current management mechanism of housing funds have led to many problems, such as fund embezzlement.

For example, some management centres, which are actually non-profit institutions, operate like profit-oriented ventures.

In many places, supervision of the management of housing funds is not in place.

Such loopholes have left the door open for wrongdoers to flourish. Some scandals have come to light in recent years.

Li Shubin, the former director of a management centre for a housing provident fund in Chenzhou, Central China's Hunan Province, was found to have embezzled 120 million yuan (US$14 million) of housing funds. It was spent on gambling and corrupt deals during his five-year tenure from 1999.

Housing funds are so closely related to the public interest that if they are poorly managed and see huge losses, the government will have to step in.

The government has already footed the bill for State-owned commercial banks' non-performing assets. If the government is not to repeat that practice, it must take measures to plug the loopholes in the current management mechanism for housing funds.

The government should ban the funds from being invested in stocks or other high-risk investment options. It should encourage them to invest in State bonds or other low-risk investments. After all, management centres for housing funds are non-profit institutions.

Preventing risk should be the priority when making investment decisions for management centres.

It is also recommended that housing funds be put under the supervision of the central bank or the China Banking Regulatory Commission.

(China Daily 04/06/2005 page6)