China Software & IT Services Industry Outlook: AI Leading a New Growth Cycle
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China Software & IT Services Industry Outlook: AI Leading a New Growth Cycle
AI technology is propelling China's software and IT services industry into a new growth cycle, with enterprises accelerating budget allocation towards AI, focusing on AI-native applications and cloud infrastructure upgrades.
- China's software market is projected to grow at a compound annual growth rate of 13.9% by 2028
- AI-related spending is becoming the main driver of IT budget growth
- Enterprise willingness to deploy AI-native applications has significantly increased
- Demand for cloud infrastructure is surging, especially for AI training and inference workloads
- Leading vendors such as Kingsoft Office and Meitu are actively building AI product portfolios
Report interpretation
Overview
Based on research data from Chinese enterprises, this report provides a comprehensive analysis of the current state and future trends of China's software and IT services industry under the wave of artificial intelligence (AI). The report points out that AI is reshaping enterprise IT architecture and business models, driving the software industry into a new growth cycle. Enterprise investment willingness in AI is increasing, cloud infrastructure has become a development focus, and a batch of competitive domestic AI application vendors have emerged.
Core views
The report shows that China's software market is expected to maintain strong growth, with IDC predicting that the market size will expand at a compound annual growth rate of 13.9% by 2028. The widespread application of AI technology is the primary driving force, with over 60% of enterprises planning to increase AI-related budgets in the next three years. In terms of enterprise IT spending, AI-related investments have significantly risen, with nearly half of the enterprises viewing AI budgets as new expenditures rather than traditional project reallocations. AI cloud services have become a new engine for cloud computing development, particularly with high demand for new computing resources optimized for AI training and inference. At the application level, AI Agents and intelligent assistant products are rapidly gaining popularity, and enterprise-level applications like ERP and CRM are also accelerating AI integration. Representative companies such as Kingsoft Office and Meitu have launched several AI-powered products, enhancing user experience and operational efficiency. On the infrastructure side, AI's massive demand for computing power has driven upgrades in data centers and cloud platforms. Demand for high-performance computing hardware such as GPUs has surged, prompting relevant vendors to increase investment. Meanwhile, new models like hybrid cloud and edge computing are gradually emerging to meet diverse AI application scenarios.
Analysis framework
The report gathers first-hand data through surveys and in-depth interviews with CIOs of Chinese enterprises to assess the impact of AI on the software and IT services industry. The analytical framework includes the following dimensions: 1. **Demand-side Analysis**: By researching enterprises' awareness of AI technology, adoption willingness, and budget allocation, we evaluate changes in market demand trends. 2. **Supply-side Analysis**: Combined with vendor product roadmaps and technological evolution paths, we assess market supply capabilities and innovation levels. 3. **Industry Chain Transmission**: We track the transmission process of AI technology from underlying hardware to upper-layer applications to identify key investment opportunities. 4. **Financial Impact Assessment**: By analyzing typical enterprises' revenue structure, gross margins, and capital expenditure, we measure the economic benefits brought by AI transformation. The report also employs a volume-price decomposition method to separately evaluate the impact of AI technology on software product unit prices and sales volumes, thereby more accurately forecasting market growth momentum.
Methodology notes
Assessing changes in the demand side by surveying enterprises' adoption willingness and budget allocation regarding AI technologies
This method evaluates market demand growth potential and structural changes by understanding enterprises' attitudes and actual investments in AI
Breaking down the impact of AI technology on software products into two dimensions: price increase and sales growth for analysis
By distinguishing between value enhancement (price) and user scale expansion (sales) brought by AI, we can more accurately assess its contribution to revenue
Analyzing the transmission path and influence mechanism of AI technology from underlying hardware to upper-layer applications
By tracking the transmission process of AI technology across the entire industrial chain, we identify key nodes and development bottlenecks
Analyzing changes in working capital during enterprises' AI transformation process
By observing changes in working capital items such as accounts receivable and inventory, we assess corporate operating efficiency and cash flow status
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Kingsoft Office (688111.SH)Benefiting from growing demand for AI-powered office software, WPS series products integrate AI features to enhance user experience
- Strengths
- Possesses a large user base and a mature office software ecosystem
- Weaknesses
- Faces pressure from international giants
- Comparison
- Leads in the domestic market compared to similar competitors, but lags in international expansion
- Risks
- Risk of rapid obsolescence due to AI technology iteration and intensified market competition
- Meitu Inc. (1357.HK)Strong advantage in AI image processing technology, benefiting from consumer and professional users' demand for smart design tools
- Strengths
- Deep technical accumulation and brand recognition in the field of image processing
- Weaknesses
- Relatively small user base and limited monetization channels
- Comparison
- Focuses on a niche segment compared to comprehensive office software vendors but with a smaller user base
- Risks
- Slowing user growth and fluctuating profitability
- Kingdee International (0268.HK)Enterprise-grade ERP and cloud services benefit from digital transformation and AI integration needs
- Strengths
- Has long been focused on enterprise services with high customer stickiness
- Weaknesses
- Relatively slow product innovation speed
- Comparison
- Has certain advantages in the large enterprise management software market, but lacks penetration in the SME market
- Risks
- Underperformance in SME market expansion
Key data
- Predicted Size of China's Software Market by 20281548 Billion USDCalculated based on a compound annual growth rate of 13.9%
- Proportion of Enterprises Planning to Increase AI Budget in the Next Three Years67%Higher than current year's budget growth rate
- Proportion of Enterprises Adopting AI Cloud Services (Projected for 2026)57%Significantly higher compared to 2024
- Proportion of AI-Related Spending in Total IT Budget (Projected for 2026)15%More than double the 6% in 2024
Impact & implications
The application of AI technology is profoundly changing the competitive landscape of China's software and IT services industry. For software vendors, AI not only enhances product intelligence but also fundamentally changes business models and service methods. Subscription-based (SaaS) models are accelerating their adoption, and usage-based pricing models are gradually emerging. For infrastructure providers, AI brings unprecedented computing demands, driving upgrades to data centers and cloud platforms. High-performance computing chips, storage devices, and related hardware are presenting development opportunities. For end-user enterprises, AI lowers automation barriers and improves decision-making efficiency, but also poses new challenges to talent structures and organizational management. Companies need to restructure their IT architectures and cultivate composite talents to fully leverage the value of AI.
Risks
- Rapid AI technology iteration may cause existing products to become obsolete quickly
- Economic downturn may lead enterprises to cut IT budgets
- Regulatory policy changes could affect the commercialization of AI technologies
- Intensifying international competition, particularly in high-end markets facing pressure from overseas vendors
What to watch
- Actual execution of AI budgets and ROI performance of enterprises
- Market feedback and user retention rates of mainstream vendors' AI products
- Emergence of relevant policies and regulations and their impact on enterprise AI applications
- Investment progress and return cycles of cloud infrastructure