The brazen knife attack in south-western Kunming is deliberately timed just before China's political season kicks off, observers say.
The Chinese government has blamed Saturday's incident on Xinjiang's Uighur separatists and labelled it as a terror attack.
Reports said 29 were killed and 130 seriously injured in the assault by a group of knife-wielding attackers at a railway station in Kunming city on Saturday night.
It took place just days before China enters a political sensitive fortnight with the annual sessions of its national parliament and political advisory body taking place in the Chinese capital from Monday.
Dressed in black and donning masks, more than 10 attackers, which reportedly included women, stormed the train station and began slashing the commuters indiscriminately.
Police shot dead four of the attackers and detained one, Xinhua reported, while approximate five others are on the run. It was initially reported that five of the attackers had been shot dead.
Gory, chilling photos and eye-witnesses accounts have gone viral in Chinese media and cyberspace from Sunday morning.
"I saw a person come straight at me with a long knife, and I ran away with everyone," said witness Yang Haifei, who spoke to the official Xinhua agency from the hospital in Kunming.
He said those reacting slower than him ended up more severely injured compared to his chest and back wounds, adding "they just fell to the ground".
Chinese President Xi Jinping has instructed the authorities to investigate thoroughly and to render utmost help to the survivors and the victims' families. Public security chief Meng Jianzhu has been despatched to the city.
Observers say that if the incident proves to be masterminded by Xinjiang Uighurs, it would mark the first time that Xinjiang's restive violence has spilled into heartland China, just months after striking at the political heart of China.
In October last year, a vehicle carrying three Uighurs smashed into the crowd and went up in flames near Tiananmen Square in Beijing, killing themselves, two tourists, and injuring more than 40 others. China also labelled it as a terror attack orchestrated by the Xinjiang separatists, with help from the East Turkestan Islamic Movement.
Uighurs are a Muslim minority group who oppose what they deem as Chinese government's oppressive and unfair rule in the western region.
Xinjiang expert Barry Sautman told The Straits Times that the significance of the attack lies in its timing, just before the political meetings begin.
"The other significance is of course that the Kunming attack was carried out far from Xinjiang and was not mainly symbolic, as was the incident in Tiananmen," he added.
"Rather, it was classically terroristic - designed to create panic among the civilian population and show that the terrorists can strike anywhere, any time, thereby indicating that they also are powerful," said Prof Sautman of the Hong Kong University of Science and Technology.
He added that Kunming may have been chosen mainly because it is a transportation hub with a great reputation.
"It has many migrants, tourists and international connections and not far from borders. It is also in one of the provinces (as opposed to autonomous regions) that has a significant percentage of ethnic minority people (about one-third of the population)," said Prof Sautman.