Cannavaro, who also serves as head coach of Chinese Super League side Guangzhou Evergrande, was put in charge for the four-team tournament following Marcello Lippi's resignation after January's Asian Cup.
But the World Cup-winning defender saw his team lose to a Thailand side that Lippi's squad had eliminated from the last 16 phase of the continental championship in the United Arab Emirates.
Japan-based Chanathip scored in the 33rd minute when he side-footed home from 10 yards after Thitipan Puangchan cut the ball back to the Consadole Sapporo midfielder, who had time and space to finish.
The defeat means China will face the loser of the meeting between Uzbekistan and Uruguay - who face each other on Friday - in the China Cup's third place playoff on Tuesday, with the winners meeting Thailand in the final.
(Reporting by Michael Church, Editing by Christian Radnedge)
