The 2022 British Open champion, and joint overnight leader in the $2 million Asian Tour International Series event, carded six birdies against two bogeys for a four-under-par 66.
The Australian was joined at the top of the leaderboard in the morning by South Korea's Bae Sang-moon on 11-under overall at a sweltering Fanling.
Smith, one of the biggest names to make the jump to the lucrative Saudi-backed LIV Golf tour, was out for his second round starting at 6:45 am.
"The 3:30 alarm this morning was a little bit much," said Smith, who is chasing victory at Asia's oldest professional golf tournament for the first time.
"The body wasn't quite there this morning, it was probably still a little bit asleep.
"But I managed to do what I really needed to do and go into the weekend with a shot."
Asked if he planned to practise in the afternoon, Smith said he was instead going to have a nap.
Bae fired an eagle at the par-five third hole and also had seven birdies and two bogeys in his seven-under-par 63.
