The Naseer Hussain-led Indian side, ranked 84th in the world, put up a fantastic display and outplayed the formidable 52nd ranked Chinese in all departments of the game at the flood-lit Delhi University Rugby Stadium.
With this win, India are just one step away from progressing to Division-I.
India will play either Philippines or top seeds Thailand in the summit clash on Saturday.
India were dominant from the outset. In the first five minutes, the hosts earned two penalties and Rohan Sethna made no mistake in converting.