Wen Linfeng, head of the research division with the ministry's policy research center, said China's housing security system is made up of the public housing fund (PHF), and the affordable housing and low-rent housing projects.

The PHF is the most wide-reaching housing security system in China. Under the system, each urban employee has an account with the local PHF management center and deposits a portion of his monthly salary into the account. The same amount is contributed by his employer and the money can be used to apply for mortgage loans from the PHF center.

Wen explained that the PHF works on three levels. Firstly, it forces people to save part of their income for purchasing houses. Secondly it works like a cooperation, with all members contributing to the same pool and receiving help from the fund when necessary. Thirdly, the PHF is free of personal income tax and its mortgage loans carry a lower interest rate than commercial mortgage loans.

According to the Ministry of Construction, by the end of 2005, 63.3 million employees nationwide had contributed 976 billion yuan (122 billion U.S. dollars) to the PHF, which approved mortgage loans worth 459.9 billion yuan (57.49 billion dollars) to 5.24 million people.

Affordable housing project is another part of the housing security system. Under this system, the government encourages the building of houses affordable to middle and lower-income groups by providing cheap or free land or tax rebates for developers.

By the end of 2005, about 470 million square meters of affordable houses were built nationwide, helping 5.7 million urban households improve their housing conditions.

However the system is riddled with defects particularly as investment in affordable housing project has dwindled in recent years. In 1999, affordable houses accounted for 16.6 percent of the total investment in new houses. But the figure dropped to less than five percent in 2005.

The management of the affordable houses also needs to be improved, Wen said. Currently many high-income earners are buying affordable houses, due to the lack of a comprehensive personal credit record system and poor enforcement of income evaluation standards.

The third form of housing security is the low-rent houses designed to help the poorest urban group. Such houses are built or sourced from the market by the government and then allocated to competent applicants. Authorized applicants can also source houses for themselves and receive rent subsidies from the government.

According to the Ministry of Construction, government had spent 4.74 billion yuan (593 million dollars) on low-rent houses by the end of 2005, benefiting 329,000 households.

However, this system is not available to everyone in China. By 2005, 70 of the 291 cities at or above prefecture level still had not established the low-rent housing system. Following a recent order from the central government, these cities should establish the system by the end of 2006.