Industrial software, as the core foundation of intelligent manufacturing, is experiencing steady market growth driven by policy support and technological advancements. The integration of AI and other emerging technologies is accelerating the intelligent transformation and upgrading of the manufacturing sector.
At the policy level, intelligent manufacturing has evolved from pilot demonstrations during the "13th Five-Year Plan" to systematic planning in the "14th Five-Year Plan," now elevated as a national strategy. Technologically, AI is deeply merging with industrial software, while physical AI further enhances simulation and decision-making upgrades across multiple industries. Moving forward, industrial software will focus on achieving self-sufficiency in key technologies, implementing vertical domain-specific large models and intelligent agents, and leveraging industrial data as a critical factor to support China's "Made in China 2035" goals.
Key insights from China Securities include:
1. **Clear Path for China's Manufacturing Intelligence with Strong Policy Support** The "14th Five-Year Plan" for Intelligent Manufacturing outlines specific targets, such as achieving a digital penetration rate exceeding 70% among large-scale manufacturing enterprises by 2025. Recent policies, including large-scale equipment upgrades, supply chain security, and the "AI+" initiative, underscore industrial software and operating systems as pivotal technologies. These will continue to receive robust policy backing to drive high-quality, secure intelligent upgrades in the long term.
2. **Steady Growth and Structural Diversification in China's Industrial Software Market** The market size reached RMB 354.14 billion in 2024, with core segments projected to grow to RMB 76.5 billion by 2029, reflecting a 19.1% CAGR. While overseas giants dominate high-end R&D and design segments, domestic players are making breakthroughs through technological accumulation. In production control and management software, local vendors are gaining market share with customized services and cost advantages, particularly in high-end ERP substitution. Cloud computing and AI are fostering new business models, injecting fresh momentum into market growth.
3. **AI Integration Driving Intelligent Transformation Across Industrial Processes** - In R&D, AI enhances CAD with generative design and intelligent optimization while improving CAE simulation capabilities. - In production control, AI-powered DCS and PLC enable closed-loop optimization from global planning to real-time edge control. - Industrial large models and intelligent agents are being deployed in quality inspection and energy management, lowering technical barriers. - Physical AI combines physical laws with AI for high-fidelity simulations in advanced equipment and low-altitude economy sectors.
Future advancements will hinge on industrial software's foundational role, industrial intelligence's cognitive capabilities, and data utilization to achieve China's 2035 manufacturing vision.
**Risk Factors:** 1. **Macroeconomic Downturn:** Weak manufacturing IT spending could dampen demand for industrial software and AI. 2. **Accounts Receivable Risks:** Project-based contracts in industrial solutions may face extended payment cycles, increasing bad debt risks. 3. **Intensified Competition:** Stable demand in manufacturing informatization may lead to shifting competitive dynamics. 4. **Geopolitical Uncertainties:** Global instability and U.S. tech restrictions could impact supply chains and overseas expansion.
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