The former US Open champion, playing only her fourth match since returning from eight months out and three surgeries, had battled back strongly from a set and a break down to force a deciding set.
But Raducanu then appeared to struggle with breathing difficulties, clutching at her chest and abdomen before calling the trainer after two games.
She had her blood pressure checked and took some pills before resuming, and she battled hard to try to turn the match around but Wang held firm to win 6-4 4-6 6-4 after two hours and 55 minutes.
Raducanu's exit followed those of Katie Boulter and Jack Draper and means Cameron Norrie, who battled from two sets down earlier to beat Giulio Zeppieri, is the only British player through to the third round.
Raducanu comfortably won her first-round match against Shelby Rogers, but the American looked very rusty after a long break herself which made it difficult to gauge the 21-year-old's true level.
This was a much bigger test, with Wang a former top-50 player now ranked 94 who is still working her way back up the game after choosing not to travel amid China's restrictive Covid policies.
The 29-year-old's game initially held up better than Raducanu's in the breezy conditions and she opened a 5-2 lead in the first set.
The match was again being played on the relatively small 1573 Arena, and queues stretched from each entrance with fans eager to watch the contest.
Raducanu had the majority of the support, and she sparked hopes of a comeback by winning consecutive games to make it 5-4, but Wang served it out at the second time of asking.
There were too many errors off the racket of the British player, and she dropped serve again at the start of the second set.
But Raducanu dug in and gradually began to find her range, finally taking her fifth break point in a long fourth game to draw level.
The 21-year-old is determined to stick to an aggressive game plan following her comeback and her forehand was now looking the dominant shot.
She broke to lead 5-3 with a sizzling cross-court winner but tentativeness crept in as she tried to serve out the set, with two chances going begging.
Raducanu did not let the disappointment affect her, though, and refused to be hesitant when more chances arrived on Wang's serve, drilling a backhand winner to clinch a mammoth 65-minute set.
Both players took a bathroom break but that did not alleviate the discomfort Raducanu was feeling, and there was doubt over whether she would be able to continue.
She improved physically again as the match went on and will feel she could have turned the set around but a final backhand into the net signalled her demise.
