Demand is there. Both domestic and foreign investors are looking for business opportunities in everything from state-protected financial services to food. Small and medium-sized enterprises account for 80 per cent of China's urban jobs, according to government statistics.

Ma once remarked about the difficulty with being an entrepreneur in China - "Today is difficult, tomorrow is more difficult" - in a nation where government banks prefer to loan to large state-owned companies.

Opportunities abound for visionary people, he seemed to say, but they required persistence and perseverance.

The private sector delivered a return on equity of 27 per cent in 2012, well above the 12 per cent delivered by the state enterprises, which had a dismal return of less than 5 per cent in 1996.

State enterprises - mostly large banks, energy production, telecommunications companies and shipyards - represented more than 40 per cent of industrial assets in 2012, but they generated just 25 per cent of the country's overall revenue, according to CLSA, a Hong Kong-based brokerage firm.

There are challenges to change. Last year, China overtook the US to become the world's biggest goods-trading nation for the first time, ending the post-war US dominance of global commerce. But China's household consumption as part of its gross domestic product remains one of the world's lowest.

China also needs to tackle challenges such as its rapidly ageing population and lost competitiveness because of rising wages.

How to convince the Chinese to save less and spend more will be key to the economy's growth - and the future of private enterprise in the country.

In 15 years, Alibaba Group has evolved from an online trading platform to a business with a number of profitable retail sites, including Taobao and Tmall. Ma's companies are buoyed by China's growing middle class, which seeks better-quality goods in a country where counterfeit and shoddy products prevail.

Ma has an 8.9 per cent stake in Alibaba, translating into US$15 billion and making him the richest person in China. Even before his financial success, Ma was admired by Chinese people for his creativity and independence. His vision has dramatically changed the business landscape.

Ma's influence has spread past mere commerce. Yuebao, Alibaba's online investment fund, offers annual interest rates of up to 6 per cent, and has attracted more than 500 billion yuan (HK$630 billion) from 81 million investors since its launch in June last year.

"If the state-owned enterprises don't want to change," Ma was once quoted as saying, "we change them." And indeed he has.

His fund has pressured traditional banks to provide more market-friendly products to the general public.

Traditionally, banks have earned a hefty profit from the difference between the deposit and lending rate. But the environment has changed, with central bank chief Zhou Xiaochuan promising in March that the country would free up interest rates on bank deposits in two years.

"The emergence of Alibaba's Yuebao online money-market fund has prompted the authorities to speed up reform in the financial sector, which is a critical part of the economic reform," said Li Jiange, vice-chairman of state-run investment company Central Huijin.

Private enterprise alone won't push most of China's state-owned enterprises to modernise. Unlike the more nimble private sector, the country's state-owned enterprises have thrived with access to easy credit under opaque rules, allowing corruption at some corporations to flourish.

"Officials who work within SOEs [state-owned enterprises] can get corrupted more easily, largely because there is no oversight," said Xiao Geng, a research director at the Fung Global Institute, a Hong Kong-based think tank.

"Private companies have owners. If you want to steal money from private owners, they will not allow you to do that. The corruption that takes place within a private company can be of a different nature, that is, of private owners trying to bribe regulators to try and get special advantages," said Xiao, who is also an honorary professor at the University of Hong Kong and an independent director of HSBC Bank's China unit.

Labour costs in the private sector have shot up, along with a steady rise in economic output. For companies to pay more competitive wages, the government must offer benefits to more companies, including overhauling a complex tax system that burdens small firms.

One reform would be to increase private investment in assets that are largely state-held. Critics have said the cash-rich state-run firms lack incentive to increase efficiency. They could gain technological knowhow by partnering with foreign and private companies with operating expertise.

This month, China Petroleum & Chemical Corporation, Asia's largest oil refiner, sold a 30 per cent stake in its profitable retail unit to 25 private investors, including conglomerate Fosun International, private equity fund Hopu, and ENN Energy, a Hong Kong listed city gas distributor, for 107.1 billion yuan.

"If the state, or State Council in this case, was trying to expand innovation and help transition from a 'smokestack, export' economy to that of a domestic demand-driven economy, then the state banks were not aiding in the endeavour," Brett McGonegal - CEO of Reorient Group, a Hong Kong-listed investment firm - wrote in an email.

The State-Owned Assets Supervision and Administration Commission identified six state-owned firms that in July will be part of a reform process aimed at wooing private capital. They are China National Building Materials, China National Pharmaceutical Group, State Development and Investment, China National Cereals, Oils & Foodstuffs, China Energy Conservation and Environmental Protection Group, and Xinxing Cathay International.

In Xiao's view, government's role will decide the future for private enterprises. "How government separates itself from a regulatory role is by assuming two roles," he said. "One is government as a regulator, and the other is of government as an owner of assets, but not companies."

Frank Lyn, a Hong Kong-based partner at auditor PricewaterhouseCoopers, said state-owned companies would struggle to adapt. "One of the difficulties for the state-owned firm to innovate is its corporate structure, where its chief is often a party member who will spontaneously follow the Communist Party's lead," Lyn said.

A clear regulatory role and market participation could provide more fairness, and more market access, for privately held companies and foreign investors.

Francis Cheung, a China strategist at CLSA, an equity broker and investment group, said state-owned firms benefited from too many preferential policies and subsidies, "which make them difficult for private companies to compete with".