Nadal, 33, played at the Laver Cup last month, but missed his matches on the final day because of the problem.
The Spaniard, who won the US Open in September for his 19th grand slam title, was due to play in Shanghai, but his withdrawal was confirmed on Friday.
"Hi all, I am very sad to announce that I won't be able to play in Shanghai this year. It is the second year in a row and in China I have great fans," Nadal said.
"The tournament is amazing and the city one of the most special places around the world.
"But, as you all probably know, I had an inflammation on my left wrist during the Laver Cup and I haven't had the time to recover and practice to be ready for this amazing event.
"I hope to be back in Shanghai for the 2020 tournament."
A two-time runner-up in Shanghai, Nadal missed the event last year with a knee injury.
Shanghai Masters tournament director Michael Luevano wished Nadal all the best in his recovery.
"We will obviously miss not having Rafa here at the Shanghai Masters. He has been an incredible supporter of the tournament and of tennis in China," he said.
"He gives so much when he is on the court and his toughness knows no bounds like in 2014 when he played the tournament while suffering appendicitis.
"It should go without saying that on behalf of everyone at the Shanghai Masters we hope the left wrist mends fully and he is back on tour very soon, continuing to enthral fans with his tennis.
"Also, on a personal note, as well as speaking for the entire family at the Shanghai Masters, we wish Rafa and his fiance Maria Francisca [Perello] all the very best for their upcoming wedding.
"Rafa's legions of fans in Shanghai and China look forward to welcoming him back in 2020."