Scotland now face an uphill struggle if they are to qualify for their tenth consecutive Cup quarter-final place as they were pipped at the post by an enthusiastic China side looking to get their first win at their home tournament.
Greig Laidlaw was first to cross the line with Mike Adamson converting.
China then replied before Colin Shaw touched down.
However, in the closing stages, two tries from China, one converted, meant the Scots would have to get a win over Kenya to guarantee a place in the quarter-finals tomorrow.
After the game, Scotland 7s coach Stephen Gemmell said: "There's a lot of disappointment in the dressing room after that game, probably the most I've felt since I've been involved in rugby sevens.
We just didn't play well enough. We analysed China before the game and the guys just underperformed.
China were full of enthusiasm and managed to convert that into points as they turned the ball over on numerous occasions. That's just not accurate enough from us and you get punished when you make little mistakes at this level."
Scotland 7s: Scott Forrest (Ayr)* CAPTAIN, Chris Fusaro (Heriot's)**, Scott Newlands (Edinburgh), Greig Laidlaw (Edinburgh), Mike Adamson (Glasgow Warriors), James Thompson (Heriot's)*, Ben Addison (Stirling County)*
Substitutes: Colin Shaw (Glasgow Warriors) for Addison, Richie Vernon (Glasgow Warriors) for Newlands and Roddy Grant (Heriot's)* for Fusaro
* = Member of Scottish Rugby's Senior National Academy
** = Member of Scottish Rugby's Junior National Academy and supported by Area Institute of Sport
Scotland 7s' remaining Pool E fixtures at the IRB Hong Kong Sevens:
Day 2 - Kenya v Scotland, kick-off 5:28pm (local time.)
IRB Sevens World Series
Dubai (UAE), 30 November-2 December
George (South Africa), 7-8 December
Wellington (New Zealand), 1-2 February
San Diego (USA), 9-10 February
Hong Kong (China), 28-30 March
Adelaide (Australia), 5-6 April
London (England), 24-25 May
Edinburgh (Scotland), 31 May-1 June(
Emirates Airline Edinburgh 7s - 2008
Rugby sevens will return to the country of its birth, Scotland, on 31 May and 1 June for the Emirates Airline Edinburgh 7s, the final leg of the IRB Sevens World Series.
The Emirates Airline Edinburgh 7s will feature the world's top teams over two days of fast flowing, skilful and dynamic international rugby sevens together with a fun-packed Festival of Rugby on the back pitches at Murrayfield.
The sevens are coming... back! Visit www.edinburgh7s.com