The Australian left opponent Steve Johnson and umpire Fergus Murphy baffled when he shook hands and walked off court after losing the first set on a tie-break on Tuesday.
Kyrgios had become increasingly unhappy with Murphy and, after being given a point penalty for an audible obscenity during the tie-break, was heard to say he would quit if he lost the tie-break.
The 22-year-old later blamed a stomach bug but did not seek medical help on court and then went against ATP Tour rules by not having a medical examination following his retirement.
That has resulted in him losing the 21,085 US dollars (approximately £16,000) he would have earned in prize money.
The point penalty followed an earlier warning for smashing two balls angrily out of court, for which Kyrgios has been fined 10,000 dollars for unsportsmanlike conduct.
Explaining his withdrawal, Kyrgios wrote on Twitter: "I want to apologise to the fans in Shanghai and those that watched around the world on TV today.
''I've been battling a stomach bug for the last 24 hours and I tried to be ready, but I was really struggling on the court today, which I think was pretty evident from the first point.
''My shoulder started to hurt in the practice today, which didn't help either, and once I lost the first set I was just not strong enough to continue because I've not eaten much for the past 24 hours."
Kyrgios subsequently withdrew from his second-round doubles match on Wednesday.
This is the second year in a row where the Australian has found himself in hot water in Shanghai, although his punishment this time is much less severe than 12 months ago.
Kyrgios was fined more than 50,000 US dollars and banned from the ATP Tour for a lack of effort in his second-round match against Mischa Zverev, during which he argued with the umpire and fans.
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