China's Big Chill

Following its crackdown on star capitalist Jack Ma, entrepreneurs grow cautious

- Peter Elstrom and Coco Liu, with Edwin Chan and Shiyin Chen

In barely 40 years, China has dramatically opened up its economy and become one of the world’s primary growth engines. Now, President Xi Jinping is making ambitious plans to pull ahead of rivals by turning his country into a digital powerhouse. But Xi’s drive toward tech dominance is being threatened by an unexpected speed bump: China’s forceful crackdown on Jack Ma’s business empire.

The abrupt fall from grace of the Alibaba Group Holding Ltd. co-founder has cast a chill over parts of China’s technology sector, according to local entrepreneurs and venture capitalists, even as Xi prepares to pour trillions of dollars into making the country self-sufficient in everything from semiconductors to software.

One startup founder in Ma’s home province of Zhejiang says he no longer aspires to Alibaba-size success, fearing the risk of unwanted government attention. Another says he’s stopped speaking in public and plans to focus on expanding his robotics business overseas. A venture capitalist who’s backed dozens of startups says the Ma saga will make entrepreneurs less aggressive, especially those who compete against state-owned companies. All three requested anonymity to speak freely about a politically sensitive subject.

“The Jack Ma incident could be a turning point” for China’s tech sector, says Rebecca Fannin, founder of research group Silicon Dragon Ventures.