On the one hand, China has plenty of capital and a growing pool of start-up talent eager to repeat the success of Alibaba's Jack Ma, whose 16-year-old firm is already one of the world's most valuable. On the other, while Chinese leaders recognize the need to nurture start-ups to keep their country's vast economy growing, they have also been limiting some of the freedoms that often prove critical to producing successful new enterprises.
At this year's Harvard China Forum, whose theme was "Defining the Chinese Dream," leaders in technology and business in China expressed optimism that their country could replicate the success of firms such as Alibaba -- not to mention six-year-old smartphone maker Xiaomi whose valuation is nearing $45 billion and DJI Technology, a drone maker worth some $8 billion just six years after its launch and expected to generate $1 billion in revenue this year.
One such leader was Victor Wang, who in the mid-1990s co-founded a successful English-language teaching start-up and now invests in early-stage Chinese start-ups in collaboration with the powerful venture capital firm Sequoia Capital.
According to Wang, the Chinese government has been moving quickly to remove some legal and financial barriers to entrepreneurship, such as the requirement for government approval for listing a company in China (instead of just registering to do so like in the U.S.). Wang predicted this requirement will vanish by the end of the year.
If government officials really want to "shift the economic pattern from an export model to a consumption model, they have to make this happen," Wang said.
Another reason Wang is optimistic about China's start-up scene is that success tends to beget success. After Chinese employees gain experience at homegrown companies such as Baidu (BIDU) and Tencent (TCEHY) , they set off to start their own ventures with more training and better connections. "The quality of start-ups has dramatically increased," Wang said.
One start-up that's drawn Wang's investment attention that he said could soon be huge is Koudai Gouwu; the name in Mandarin means "pocket shopping." The company, valued at more than $4 billion, offers a mobile shopping platform that handles about $16 million in transactions a day, Wang said.
Another is 17zuoye, which recently raised a round of funding at a valuation of $600 million. The company's four-year-old online education platform lets children collaborate with their parents to do homework and has captured more than 20% of the elementary school market in China.
Fred Hu, founder and chairman of investment firm Primavera Capital and a former head of Goldman Sachs's Chinese operations, said China has some significant advantages in fostering start-ups, including access to capital, the vast size of its domestic market and a hiring pool of more than a million college graduates, schooled in math and science.
But Hu, an early backer of Alibaba, pointed out that significant obstacles persist, chief among them a lack of intellectual property protections, a rigid education system not allowing for much creativity and a reliance on a strong government, instead of market forces, to drive growth.
"The question of whether China can innovate -- there's no definite answer," Hu said in a speech in Chinese at the Harvard forum.
While China may have the talent and other advantages for fostering start-ups, the political system could well hold the country back in the end, said Warren McFarlan, a Harvard Business School professor and co-author of Can China Lead? "This is an environment where you're extraordinarily circumscribed in terms of what you're allowed to do."
Under Xi Jinping, China's president since 2013, the government has moved toward tighter control and monitoring of its people, as well as punishment for dissenters. That's extended to universities, where McFarlan said monitors have re-emerged to ensure that what students say is politically correct.
An internal government paper known as Document No. 30 clearly lays out what can and cannot be said on campus, McFarlan said. An environment like this makes it difficult to produce the contrary and "what-if" type thinking that's crucial to producing world-class start-ups.
Alibaba may have been an example of a singular success from China rather than a harbinger of things to come, McFarlan suggested. "Alibaba was enormously successful because it didn't deal with information relating to people; it very much has to do with financial transactions."
After meeting Jack Ma in 2000, McFarlan was struck by his "extraordinary ability to communicate, manage relationships and work in [the Chinese] environment," the Harvard professor said. If he lacked those capabilities and had been building, say, a social network like Facebook instead of an e-commerce operation, he might not have attained the same measure of success.
"It has nothing to do with whether the Chinese are capable," McFarlan said. "But the question is whether the current political structure can help [entrepreneurs] go forward or represents a hindrance."
Concluded McFarlan: "It's a complicated place to do business."