As China accelerates the integration of artificial intelligence into its vast manufacturing base, global industrial software leaders are increasing their investments to capture a share of the world’s most dynamic industrial ecosystem. French multinational Dassault Systèmes has announced a major commitment to the Chinese market, establishing a 1.5 billion yuan ($220.5 million) digital industrial fund to support local start-ups and advance the deployment of physical AI in manufacturing.
The investment underscores a growing recognition among global technology firms that China is no longer just a massive consumer market or a low-cost manufacturing hub, but a primary engine of global industrial innovation.
“We are not in China simply to serve the local market. We are here because China has become one of the places where innovation is moving fastest,” Pascal Daloz, chairman and CEO of Dassault Systèmes, told China Daily during a recent three-day tour of six Chinese cities. “For global companies, being part of this ecosystem is becoming essential to staying competitive over the long term.”
The Digital Industrial Fund
The newly established digital industrial fund represents a significant financial commitment to China’s emerging AI hardware and software ecosystem. According to Daloz, the fund has already received an initial tranche of 750 million yuan, with a second tranche of 750 million yuan expected by the end of May 2026.
The fund’s investment thesis is tightly focused on the intersection of the digital and physical worlds. It will target companies developing industrial AI, physical AI systems, robotics, humanoid robots, electric vertical takeoff and landing (eVTOL) aircraft, and smart manufacturing solutions. Beyond providing capital, Dassault Systèmes intends to leverage its global network to help these local Chinese companies expand internationally.
This investment aligns perfectly with Beijing’s strategic priorities. In late 2025, eight Chinese government departments, including the Ministry of Industry and Information Technology (MIIT), issued a comprehensive action plan to accelerate the application of AI across the manufacturing sector. The government has set ambitious targets, aiming to develop 1,000 high-level industrial intelligent agents and promote 500 typical application scenarios by 2027.
The push for industrial AI is also driving significant infrastructure investments, including the launch of specialized facilities like the national pilot base for embodied AI in Hangzhou, which provides a testing ground for the exact types of robotics and physical AI companies Dassault Systèmes is targeting.
From Language Models to Physical AI
Dassault Systèmes’ strategy in China highlights a critical shift in the AI landscape: the transition from text-based large language models (LLMs) to AI systems capable of understanding and interacting with the physical world.
“AI is not something we put on top; it is something we put inside,” Daloz explained. He emphasized that while LLMs are powerful for processing text, industrial scenarios require a fundamentally different approach where accuracy, physics, and production processes are paramount. “Industrial AI must understand not only the laws of physics, but also how those laws are translated into production.”
To address this, the company is developing what it calls an “industry world model,” a new category of AI that combines physical AI with industrial AI, integrated directly into its software solutions. To advance this architecture globally, Dassault Systèmes expanded its partnership with U.S. semiconductor giant Nvidia earlier this year to jointly develop an industrial AI platform.
In China, the company is actively seeking local partners to build out this ecosystem. Daloz noted that Dassault Systèmes has tested more than 80 foundation models worldwide, including around 20 from China. While he observed that some Chinese models remain more language-oriented than physics-oriented, the company has identified specific local players with strong capabilities in industrial and physical AI.
The Speed of Chinese Innovation
During his tour, Daloz highlighted the rapid pace of product development among Chinese companies, citing Xpeng Motors as a prime example of a firm moving beyond catching up to actively seeking global leadership in emerging areas like humanoid robots and eVTOL aircraft.
This speed of innovation is forcing global software providers to adapt their strategies. The traditional model of simply localizing software developed in Europe or the United States is no longer sufficient. To remain relevant in China’s rapidly upgrading industrial sector, companies must deeply integrate with the local innovation ecosystem and co-develop solutions tailored to the specific needs of Chinese manufacturers.
The establishment of the $220 million digital industrial fund is a clear signal that Dassault Systèmes intends to be an active participant in China’s industrial AI revolution. As the country races to deploy AI agents across its manufacturing base, the fusion of global industrial software expertise with local physical AI innovation will be a critical driver of the next phase of global manufacturing.