Smugglers dug a 'professional' concrete tunnel into Hong Kong equipped with lights, vents, steel reinforcements and even rails to transport goods.
The underground path had "one end in a rented garage in Shenzhen and another in a thicket of reeds in Hong Kong, totally concealed", said a report posted on the official website china.com.cn.
"It was dug in a totally professional way," it said.
Semi-autonomous Hong Kong along with Shenzhen in mainland China are both important trade hubs for the fast-growing and massive market.
But the two have very different tariff systems.
The as-yet unidentified smugglers sought to exploit their proximity by building a 40-metre-long underground passage and installing a rail track and wagon with a block-and-tackle system to ferry goods such as cell phones and tablet computers.
The tunnel stood about 0.8 metres wide and one metre high, just big enough for an adult to crawl through.
It started from a remote area of Shenzhen, in a garage full of bags packed with sludge dug up from the tunnel, and ended in a cluster of tall reeds a few metres past a river dividing mainland China and Hong Kong, with the nearest village 20 metres away.
The project was estimated to have cost three million yuan ($490,000) and taken four months to build.
Border officers discovered the tunnel a week ago, and a nearby resident said she heard drilling noises for one or two nights but assumed they were for renovations.
The man who rented the garage had used a fake ID, authorities were quoted as saying.