The match was decided by a penalty awarded after a foul charged to Mika Chunuonsee against Thailand in the 72nd minute, as Chinese forward Gao Lin coolly slotted home his shot to end Thailand's chances.
China now will play Iran in the Round of 8 quarter-finals. Iran defeated Oman 2-0 in Sunday night's late game.
Vietnam, meanwhile, defeated Jordan 4-2 on penalties after the teams played to a 1-1 draw in regular time.
Vietnam next face the winner of the Japan-Saudi Arabia match to be played tonight.
It was a deserved win over Thailand for a Chinese side that welcomed back Wu Lei to the starting line-up after he missed the 2-0 loss against South Korea Republic with a shoulder injury.
A tepid opening quarter of the game gave way to an increase in intensity from the 23rd minute. Teerathon Bunmathan saw his free-kick from wide on the Thai right tipped over the bar by Yan Junling while Tanaboon Kesarat saw his speculative effort from distance soon after drift wide of goal.
Thailand had called up Supachai for the injured Adisak Kraisorn.
That move paid off. In the 31st minute, Supachai gave Thailand the early lead. The Chinese defence failed to properly clear Teerathon’s corner and, after Thitiphan Puangchan’s shot ended up at Supachai’s feet. He made no mistake on the turn from seven yards out.
At the other end, Wu Xi’s lofted pass put Wu Lei in behind the Thai defence, but goalkeeper Siwarak Tedsungnoen was quick enough off his line to block the Shanghai SIPG man’s goalwards attempt.
Xiao Zhi came off the bench to inspire the second half comeback for Marcello Lippi’s side as China advanced to the Asian Cup quarter-finals.
Supachai had given Thailand the lead just after the half hour mark, but the second half belonged to the Dragons.
Guangzhou R&F striker Xiao levelled the scores in the 67th minute, and Gao secured the win for China with the penalty, 20 minutes from time.
Xiao’s goal – the 100th of the tournament so far – was key for a China side that dominated play after the break.
They were unable to find a way past Siwarak Tedsungnoen in the Thai goal until the arrival of the veteran forward, who finally ended Thailand’s resistance.
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