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Footage widely circulated on Chinese social media shows the shot being fired at the knife-wielding attacker, who was holding a schoolboy hostage, in the head.
A group of police officers rushed to rescue the abducted pupil and surround the assailant after he was killed.
The suspect was identified as a 56-year-old local male resident, known by his surname Wang, according to an official statement.
At about 6.40pm, the suspect was shot and killed. The hostage was rescued without injuries
Wang killed one person and injured seven before the hostage took place at around 5pm on Friday outside the Experimental Middle School of Yunnan Normal University, the officials said.