THE POLITICS OF FEE EXTRACTION FROM PRIVATE ENTERPRISES, 1996-2003.

The article examines the problems facing private enterprises in China and the impact of government policies on private business development. Particular attention is paid to the problem of fee extraction by local governments and how these fees differ from user-charges by functioning like quasi-taxes that tend to be negotiable. A major obstacle that arbitrary fee extraction poses for private sector development is a potential decreased incentive for investment. However, it is argued that the side effects of a lightly regulated fee system has been mitigated by the fostering of unique ties between local political leaders and entrepreneurs, especially businessmen with positions in formal political organizations.