Murray won the first set against his world number 63 opponent but Karatsev fought back to punish the Scot’s inconsistent serve and win 4-6 6-3 6-2.
It was the first meeting between Murray and the Russian since they faced each other in last year’s final of the Sydney Tennis Classic, which Karatsev won in straight sets.
But Murray put himself in a strong position to exact revenge after saving four early break points and going on to fashion two breaks and take the opener.
Murray had jetted to China on the back of helping Great Britain into the Davis Cup quarter-finals and beat wild card Ye Cong Mo in the opening round on Thursday.
And fatigue possibly began to take its toll as Karatsev put himself in a dominant position in the second set, going 4-1 up. Despite a mini Murray revival, he held on to level the match.
Karatsev stepped up a gear in the decider, reeling off two consecutive breaks to take a 4-0 advantage which Murray never looked likely to recover.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies