The semi-finalists in Asia's top club competition in 2017 were due to play group-stage matches at a centralised venue in Thailand starting on Saturday.
But governing body the Asian Football Confederation said the team had pulled out, and cited "travel restrictions... as a result of the recent lockdown measures enforced in Shanghai".
The former Chinese Super League champions, whose players include ex-Chelsea attacking midfielder Oscar, will not be replaced in Group J and their matches will be cancelled.
The group will now consist of three teams, Chiangrai United from Thailand, Hong Kong's Kitchee and Andres Iniesta's Vissel Kobe from Japan.
Shanghai and its 25 million people have been locked down in phases since late March as the city battles an Omicron-fuelled wave of infections, with Beijing attempting to stick to its zero-Covid strategy.
