The collapse of the deal represents another setback for the US car-making giant, which had been working to shed unprofitable brands and focus on its four core brands - Chevrolet, Cadillac, Buick and GMC.
"We are disappointed that the deal with Tengzhong could not be completed," John Smith, GM vice president of corporate planning and alliances, said.
"GM will now work closely with Hummer employees, dealers and suppliers to wind down the business in an orderly and responsible manner."
"China wants economical and environmentally-friendly vehicles, rather than ones with large emissions and high-fuel consumption"
analyst with Southwest Securities
GM did not comment on the reasons for scrapping the deal.
Analysts had questioned how little-known Tengzhong, with no international experience, could turn around a struggling foreign brand like Hummer.
Many had also warned that regulators might balk at letting a Chinese firm acquire a US brand known for making "gas-guzzling" vehicles at a time when China was emphasising the development of more environmentally friendly technologies.
"Hummer is a fuel-gobbling vehicle," Liu Feng, an Beijing-based auto analyst with Southwest Securities, said.
"The government rejected the deal to indicate a direction - China wants economical and environmentally-friendly vehicles, rather than ones with large emissions and high-fuel consumption."
The wind-down of Hummer is expected to take several months and GM said it would continue to honour warranties, and provide service support and spare parts to current owners.
GM has not built any new Hummers at its plant in Shreveport, Louisiana, since mid-January and currently has about 2,500 vehicles in dealer inventory.
Hummer was put up for sale in summer 2008, a full year before GM firm fell into a government-supported bankruptcy programme in which it planned to divest Hummer, as well as Saturn, Saab and a controlling stake in Opel.
Hummer's US sales have plunged to just above 9,000 last year from nearly 56,000 in 2007.
About two-thirds of its sales have been in the US and one-third from abroad.