In the first half of the year, the Chinese software industry showcased remarkable growth, with both revenues and profits climbing to double-digit increasesRecent data released by the Ministry of Industry and Information Technology has revealed that the total revenue of the software sector reached a staggering 62.35 billion yuan, indicating an 11.5% year-on-year riseSimilarly, total profits soared to 734.7 billion yuan, representing a 15.7% increaseFurthermore, software exports transitioned from a negative growth phase to a modest gain, amounting to $25.46 billion, which showed an uptick of 0.6%. These statistics illustrate not only the resilience of the software industry but also its vital role in the broader economy.

Experts attribute this surge primarily to advancements in artificial intelligence (AI), particularly large-scale AI models that are transforming the industry's landscape

They anticipate that in the latter half of the year, innovations in software technology, such as cloud computing and big data analytics, will continue to drive substantial changes in software models and ecosystems, thereby fostering new growth opportunities and elevating business revenues.

According to Pu Songtao, the deputy director of the Cadre Institute's Information Technology and Software Industry Research, the software industry demonstrated strong momentum in the first half of the yearIT services, especially those rooted in cloud computing and big data, played a pivotal role, with revenues increasing by 12.6% year on yearRemarkably, the contribution of IT services to overall software income has risen to an impressive 67.7%. The central regions of China have also emerged as hotspots for software development, featuring a 13.2% growth in revenue—outpacing other regions, including growth rates exceeding national averages in provinces such as Shanxi, Anhui, Hubei, and Hunan.

Zhao Gang, Director of the Software Research Institute, identified three primary highlights in the software industry's development

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First, enterprises have significantly increased their research and development investments, leading to the rapid emergence of new software models, particularly in chip design, foundational AI models, and vertical applicationsSecond, software related to data resource development is witnessing accelerated growth, enhancing areas such as data governance, data labeling, training, and new database architecturesLastly, as the integration of digital and physical realms deepens, industrial software is making swift advancements, enabling various sectors.

According to Wei Daisen, vice president of Inspur Group, the first half of the year has illustrated striking revenue growth for China’s software sector, especially in rapidly developing fields such as AI represented by large modelsWith 2024 deemed the "Year of Large Models," innovations across industries are expected to deepen, signifying a key highlight for the software industry's trajectory.

Tencent's latest financial report supports these trends, revealing that for the second quarter, the company boasted total revenue of 161.1 billion yuan, a rise of 8% year-on-year

Significantly, Tencent's enterprise services demonstrated double-digit growth, bolstered by the increase in cloud service revenues and higher technology service fees from video platform merchantsIn this period, Tencent has ramped up investments in AI, unveiling the AI assistant "Tencent Yuanbao" based on its foundational model "Tencent Mixyuan." The company also introduced significant tools such as the Large Model Knowledge Engine and proprietary cloud computing services, aiming to lower barriers for the application of large AI models.

The transition from negative to positive growth in software exports this year was also noteworthyZhao Gang attributed this shift to three factors: the proactive exploration of markets in Southeast Asia, the Middle East, and Africa by many software firms seeking to capture emerging market opportunities; increased efforts in overseas market expansion by platforms such as Douyin and Alibaba; and the expansion of AI companies into international applications for large model products and services.

Pu Songtao emphasized that the upswing in software outsourcing services was a significant catalyst

On the demand side, global digitization is unlocking new spaces for digital services from software companiesOn the supply side, as domestic software applications deepen, firms are strengthening their research and development, implementation, and delivery capabilities, enhancing their international competitivenessFurthermore, ongoing government initiatives that favor openness, along with the promotion of trade under the Belt and Road Initiative, are paving the way for high-quality development of service trade, consequently solidifying policy support for software service exports.

In the context of increasing global economic integration, Chinese software companies are effectively boosting the international competitiveness of their products and services through innovation and market expansion, leading to this remarkable turnaround in export revenues.

The push for developing basic and industrial software is gathering momentum as well

The need for a self-controlled supply chain and a robust focus on key industries such as integrated circuits, industrial mother machines, medical devices, instrumentation, foundational software, industrial software, and advanced materials continues to growIt is imperative to promote technological breakthroughs and the application of results throughout the entire value chain.

The emphasis on foundational and industrial software stems from their role as essential components of the digital economyThe development of basic software is crucial for national security and industrial safety, while industrial software serves as the brain and nervous system of manufacturing, acting as a vital tool in advancing new industrialization and building a strong manufacturing sector.

Despite the impressive innovations in the past few years, inherent challenges remain in the field of foundational and industrial software

While there have been significant achievements, issues such as high reliance on foreign technologies and an underdeveloped ecosystem continue to hinder progressCore problems include supply shortages, weak demand stimulation, and an incomplete industrial structure, leaving companies vulnerable to external dependencies.

Indicators suggest that software product income reached 1.3969 trillion yuan in the first half of the year, up 9% and accounting for 22.4% of the industry’s total revenueNot surprisingly, industrial software brought in 132.4 billion yuan with a growth of 9% while foundational software garnered 85.04 billion yuan with a 10.7% increase.

Pu Songtao also noted that this year has seen substantial progress in the ecosystem surrounding foundational software, driven by open-source modelsThe policy environment for industrial software continues to improve, and the transition toward smarter industrial practices is accelerating, with the open-source operating system community "openKylin" surpassing 500 member units and the UOS ecosystem expanding to encompass over 376,500 software and 406,400 hardware units

Additionally, Huawei's HarmonyOS ecosystem now boasts over 900 million devices and 2.54 million developers, with over 1,500 native applications available.

Zhao Gang pointed out that the first half of the year showcased distinct characteristics of domestically-produced, intelligent, and large-scale foundational and industrial softwareThe development of large models is leading to upgrades across foundational and industrial software, with software products such as AI operating systems, deep learning frameworks, and vector databases exhibiting strong performanceFurthermore, industrial large models and digital twins in manufacturing are advancing rapidly, with companies focusing on strategies such as public listings and mergers to enhance competitiveness within the industry.

According to Wei Daisen, ongoing digital transformations in the manufacturing sector underscore the necessity of industrial software’s in-depth application, which can drastically improve productivity and product quality, thereby supporting the transition to new industrialization

Software enterprises are urged to increase R&D investments in core technologies, foster collaboration between academia and industry, and cultivate top-tier software talent to enhance cooperative innovationThis collaborative effort may ultimately lay the groundwork for a more open and shared software innovation ecosystem.

Taking integration between the digital and physical realms further is vitalFor instance, the manufacturing base in Hefei handles over 8,000 orders daily, with 80% constituting orders of fewer than five units, reflecting a high degree of customization from over 180 countries and regionsPrior to their AI-driven transformation, this process was pedestrian and labor-intensiveWith intelligent solutions now in play, core algorithms can handle scheduling tasks within just 1.5 minutes.

Zhao Gang maintains that the cornerstone of successful digital-physical integration lies in the digital transformation of industries, where software acts as the central driving force

The extensive application of AI, big data, and digital twin technologies across the economy will support advanced modes of production such as customized manufacturing, intelligent processes, networked collaborations, and end-to-end deliveries, thereby enhancing productivity and cost efficiency, as well as improving the resilience of supply chains—all contributing to the development of new business models in the digital economy.

Overall, industry forecasts suggest that software income and profits are likely to maintain brisk growth throughout the remainder of the yearThe dynamic development of the software sector hinges upon both intrinsic innovative momentum and external demand for digital transformationWith the backing of emerging technologies and policy support, multiple growth drivers are anticipated for the software industry in the latter half of the year, leading to continuous evolution in software technologies, business models, and ecosystems

This evolution is expected to unearth new growth avenues, while increasing demand from key industries can be anticipated as national strategies unfoldNevertheless, the sustainability of investment willingness from government and industrial users will play a crucial role in determining the future landscape of China’s software market and its vast potential.

Looking ahead, Zhao Gang predicts that artificial intelligence will herald a new epoch in the digital economy, igniting a fresh wave of innovation within the software industryProjections indicate that sustained rapid growth will characterize the software sector, particularly in the fields of AI large models, embodied intelligence software, and data-centric solutions, as well as industrial software.

In line with efforts to augment the size of the software market, Zhao Gang recommends opening up key industry scenarios, supporting innovative enterprises in securing software application orders from government and state-owned enterprises, and promoting the deeper application of technologies like AI large models within essential sectors