The Polish world No. 1 lost 2-6, 5-7 to the seventh-ranked Chinese, who was more consistent, served better and made fewer mistakes.
The Polish star, meanwhile, made 16 unforced errors in the first set and 20 in the second.
The 23-year-old will now face the loser of the other semifinal between Slovakia's Anna Schmiedlová and Croatia's Donna Vekić in the bronze medal match on Friday.
Świątek last month won her fourth French Open title in Paris. Her defeat on Thursday left many fans disillusioned, as they had hoped to see her win an Olympic gold for Poland.
The Pole made an early exit from the Olympic tournament at the Tokyo 2020 Games, where she was eliminated in the second round by Paula Badosa of Spain.
(gs)
Source: TVP, IAR, PAP
