The South Korean former world number two rattled home nine birdies and eagle against just one dropped shot to go clear of France's Celine Boutier, who shot 64, with American Lucy Li a stroke further back.
"It was really fun to play the front nine," said Kim after the round, describing her opening birdie streak after starting her round on the 10th as a "good vibe".
An eagle on the par-five 17th and another birdie on the par-four 18th took Kim to the turn in a dazzling eight-under-par 28.
Kim said she felt at home in China, where she has a history of playing well.
"I think that's why I play more relaxed and good results come to me," the 31-year-old said.
World number nine Boutier, who won her first major last July, had a six-hole birdie streak in the middle of her round to surge into second after a slow start.
Boutier said the Shanghai course was "very scorable", adding that "if you hit the fairways you definitely can have a lot of chances.
"Obviously a lot can happen still in the next three rounds," she said.
Defending champion Angel Yin of the United States had a 67, five shots off the lead, with the highlight an eagle on the par-five 17th.
China's world number four Yin Ruoning is the highest-ranked player in the field, but she couldn't ignite her home support with a level-par 72 leaving her eight strokes off the pace.
Hannah Green of Australia, the world number seven, had a day to forget with five-over-par 77.
