The Australians were unharmed during the dramatic incident, and were on their way last night to Shanghai, where consular officials were waiting to help them.

The Australians and a translator were on a bus at the Bell and Drum Tower square, in the popular north-west city of Xi'an, when the Chinese man hijacked it just before 10am (1pm Canberra time) yesterday.

Nine of the Australians were released soon after but a 48-year-old NSW woman and the translator were kept captive for some time longer, a spokeswoman for the Australian embassy in Beijing, Janaline Oh, said.

Police tried unsuccessfully to negotiate with the hijacker, named as Xia Tao from Xi'an's Yanliang district, before agreeing to let him change buses and drive to the airport. The man was making a domestic protest and demanded to speak to the Chinese President.

A sniper shot him as he approached a toll station at 12.36pm local time, China's state-run Xinhua news agency reported.

"Chinese security authorities intervened and secured the release of the woman and the Australian Government is pleased the hostages are now safe," Ms Oh said.

She did not believe the hostages had suffered any injuries.

Xinhua said the woman and translator were unharmed.

Australia's consulate-general would meet the group on arrival in Shanghai and provide assistance, a Department of Foreign Affairs and Trade spokesperson said.

Foreign Affairs Minister Stephen Smith said he was pleased the hostages were safe.

"Our embassy in Beijing and our consulate-general in Shanghai are providing consular assistance to the Australians affected by this incident," he said.

China is preparing for an influx of foreign tourists for the Beijing Olympics, to begin on August 8.

Xi'an is one of China's most popular tourist destinations, its main attraction being the Terracotta Army, a collection of more than 8000 life-size figures dating back to about 200BC.

An expert in international law and guerilla warfare, Dr Keith Suter, of Macquarie University, told Sky News last night that the use of deadly force by the Chinese showed the world that the nation would not tolerate terrorism.

"[It] sends a signal to other potential criminals 'don't mess with us ... we'll just shoot you dead if we get the opportunity'," he said.

with agencies