Sunday's race is expected to take place in warmer conditions with track temperatures set to double, and Wolff says Mercedes took that forecast into account when setting its vehicle up for the race.
Ferrari have now locked-out the front row for a second consecutive race and Wolff admitted that Mercedes are on the back foot.
Mercedes were half a second slower than the Prancing Horse and Hamilton finished fourth, behind team-mate Valtteri Bottas.
"If this is the start of a new era then Lewis Hamilton will have to think carefully about whether he signs up to Mercedes for a long-term contract". Vettel will certainly be hoping so - no driver has ever won the first three races in a championship season and gone on to lose the title...
Hamilton and Bottas headed back out on another set of soft tyres while Ferrari opted for the ultrasofts.
"We thought coming into today that we'd be fighting for the pole position".
"They have a really strong auto, " he said. "We were quicker in the last race [Bahrain] but they were able to hold on and will probably do the same tomorrow".
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"It's not going to be easy to beat Kimi and Sebastian tomorrow, " he said.
Sunday's race is due to be a lot warmer than the colder temperatures experienced so far over the weekend, Wolff believes if the warmer weather does materialise on race day, the set-ups on both cars will help ensure they can take the fight to the Ferraris.
The German lapped the 5.4-km Shanghai circuit in one minute, 31.095 seconds - a track record - to pip his Finnish teammate by a mere 0.087 seconds and take his 52nd career pole. "The vehicle was awesome and just kept getting better. So I'm really happy", Vettel told reporters.
The Red Bull pairing of Max Verstappen and Daniel Ricciardo start fifth and sixth respectively, meaning the stage should be set for a fascinating run to the first corner.
Having labeled last year's temperamental vehicle "a diva" at times, Wolff admits there are similar tendencies with the 2018 auto as it has a small working window when it can access very high performance levels.
Force India's Esteban Ocon, McLaren's Fernando Alonso and Stoffel Vandoorne, who tried and failed to successfully make a tow work for each other, and Toro Rosso's Brendon Hartley were the others to miss out on the pole position shootout.