Hon, whose great week in Beijing meant she has cracked the world's top 100 for the first time, got off to a flying start against Bencic on Sunday.
The 27-year-old Queenslander stormed out of the blocks to claim the first set, then broke Bencic's serve to open up a 2-0 lead in the second.
However, the 15th-seeded Swiss, who has been ranked as high as No.4 in the world, showed plenty of poise and fighting spirit to win 4-6 6-4 6-3 and advance to a showdown with American Coco Gauff.
Despite Sunday's loss, it has been a great tournament for Hon, who stunned former French Open champion Jelena Ostapenko in the second round.
There is still plenty of Australian interest in the WTA 1000-series tournament, with teenager Maya Joint to play Britain's Sonay Kartal on Monday.
Earlier on Sunday, French Open winner Gauff was also forced to go the distance against Leylah Fernandez before closing out a tight three-setter 6-4 4-6 7-5.
The defending champion, who is a firm crowd favourite in Beijing, overcame a second-set stumble and then struggled to serve out the match in the third, before breaking Fernandez in the 12th game of the deciding set to clinch it and advance to a meeting with Bencic.
In other results, Germany's Eva Lys upset No.10 seed and former Wimbledon champion Elena Rybakina of Kazakhstan 6-3 1-6 6-4, and American McCartney Kessler was leading Barbora Krejcikova 1-6 7-5 3-0 when the Czech player retired from the match.
The event is being held concurrently with an ATP 500 men's tournament.
World No.8 Alex de Minaur carries the Australian hopes in the men's event, where he plays his quarter-final against Czech player Jakub Mensik on Monday.
- with AP
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