Hendry was one of the favourites for the title in Beijing

The Scot compiled breaks of 108, 53, 54 and 58 to move within one frame of victory but Fu hit back with breaks of 72 and 63 to win the tie.

Ronnie O'Sullivan had little trouble in reaching the next round with a 5-1 victory over China's Liu Chuang.

Graeme Dott progressed with a 5-2 win over James Wattana.

John Higgins will play Jimmy White for a place in the quarter-finals after he defeated Ian McCulloch 5-2.

Fu, who reached the semi-finals of the World Championships last year, will now face Matthew Stevens in the next round after the Welshman beat qualifier Xiao Guodong 5-0.

"I felt really confident, even in the last frame," said the 29-year-old.

"I prepared well for this match and I wanted to please my supporters. At 4-4 I didn't feel the pressure, I just waited for my chance to come along. Thankfully it did.

"I'd like to do well here. Stephen's still a very good player on his day, but he's not as consistent as he used to be. It gives you a good chance to beat him."

Tuesday results:
(Best of nine frames)

First round:
Marco Fu (HK) 5-4 Stephen Hendry (Sco)
Graeme Dott (Sco) 5-2 James Wattana (Tha)
John Higgins (Sco) 5-2 Ian McCulloch (Eng)
Neil Robertson (Aus) 5-1 Michael Holt (Eng)
Ali Carter (Eng) 5-3 Yu Delu (Chn)
Ronnie O'Sullivan (Eng) 5-1 Liu Chuang (Chn)
Matthew Stevens (Wal) 5-0 Xiao Guodong (Chn)