US software rout spills over to China’s SaaS sector

Fears that increasingly capable AI agents pose existential threats to the traditional software business have rippled through global equity markets, triggering a sharp sell-off in US software stocks this week and spilling over to China’s software-as-a-service (SaaS) sector.

Analysts say the impact on China could be just as profound, but shaped by different structural dynamics.

“SaaS growth in China in the next few years will be driven by several leading companies in cloud services and AI – Alibaba [Group Holding], Tencent [Holdings] and ByteDance,” said Aras Poon, an analyst at S&P Global Ratings.

Alibaba owns the South China Morning Post.

Unlike the US, which is home to a broad base of specialised software companies, China’s software sector has long lagged behind in scale and maturity, constrained by slower cloud adoption and a weaker appetite for recurring subscription fees. Overall information technology (IT) spending accounts for about 3 per cent of China’s GDP, compared with roughly 9 per cent in the US, according to S&P Global Ratings’ estimate.

The landscape is increasingly shaped by platform giants that control cloud infrastructure, large language models (LLMs) and established software development capabilities, and smaller companies will be more dependent on dominant players, according to Poon.