Chinese software firms defy ‘SaaSpocalypse’ with strategic AI partnerships

Legacy SaaS firms gaining, not losing

China’s established software-as-a-service (SaaS) companies are not being swept away by foundation models, HSBC research shows. Yiran Liu, head of A‑share IT software research at HSBC Qianhai Securities, argues that pure model firms lack the deep vertical know‑how required by enterprises, so the likely outcome is partnership rather than displacement. Short sentence. Clear implication: incumbents build AI into products and keep their customers.

Markets panicked, but deal-making tells a different story

It has been reported that the earlier market rout — dubbed the “SaaSpocalypse” — saw investors flee traditional SaaS names amid fears that agentic AI products such as Anthropic’s Claude Cowork and OpenAI’s Codex would render legacy software obsolete. Equity moves were real: major US vendors slumped and Chinese software indexes fell from January highs. Yet on the ground, legacy vendors are integrating AI and posting growth. Shenzhen‑based Kingdee International Software Group (金蝶), for example, it has been reported that announced guidance of roughly 1 billion yuan (US$146 million) in revenue from AI products this year, a roughly 180% increase.

Why collaboration wins in China

Why is the Chinese outcome different from Silicon Valley’s narrative? Enterprises want vertical expertise, integration with legacy systems, and compliance with China’s strict data and cybersecurity rules. Model creators deliver impressive general capabilities; SaaS incumbents deliver domain knowledge, workflows and regulatory fit. Add geopolitics — export controls on advanced chips and US‑China tensions over AI governance — and domestic partnerships become even more attractive as a risk‑mitigation and scale strategy.

Outlook: rethink the fear

The key takeaway: investors may have overread short‑term disruption risk. Reportedly, legacy Chinese SaaS firms are seeing “significant robust growth” as they layer models into existing products and strike deals with model providers. Will markets recalibrate from apocalypse to accretion? That depends on execution, regulation and whether Chinese model makers can rapidly match the industry expertise long embedded in incumbents’ software.