West Ham's deal to sign Celta Vigo striker Maxi Gomez is off, according to Sky sources.
West Ham offered Celta Vigo the £45m release clause but could not agree a payment structure.
Gomez is now close to a move to Valencia, who have offered cash and players as part of the deal.
The 22-year-old is expected in Spain on Wednesday to finalise the move.
Arnautovic, 30, passed a medical with the Chinese Super League champions over the weekend. His transfer fee has not been disclosed but Sky sources understand the deal will cost Shanghai SIPG in the region of £22.4m.
Lucas Perez departed West Ham to sign for Alaves for an undisclosed fee in June, while Andy Carroll left the club at the end of his contract.
Follow the Summer Transfer Window on Sky Sports
Sky Sports News is home to three new shows dedicated to bringing you the very latest news from this summer's transfer market.
Start your day with Good Morning Transfers at 9am as our team of reporters and pundits bring you the latest news and insight. Transfer Talk then follows at midday, delivering the biggest stories that matter to you. And join us at 7pm for the definitive round-up of the day's news with The Transfer Show.
And as well as tuning into Sky Sports News, don't miss a thing with our dedicated Transfer Centre blog.
There's also the Transfer Talk Podcast, the daily UK, Regional and European Paper Talk, plus features across skysports.com and the Sky Sports app.