The Chinese economy is slowing even faster than indicated by the People's Bank of China's surprise interest rate cut on Friday, said Peter Baum, a former Asian sourcing executive.
China has too much manufacturing capacity for current levels of global demand, which has not adequately recovered from the financial crisis, the COO and CFO of Essex Manufacturing told CNBC's "Power Lunch" on Friday.
"As an example, I was just back. We have plants that we run where they used to have 500, 1,000 workers. They're down to 200," Baum said.
Labor costs for factories are rising because working age Chinese have been educated and don't want to toil in such positions, he said. At the same time, the managers must amortize the fixed costs of the facilities over lower productivity.
On top of that, the Chinese renminbi has appreciated 25 percent since 2004, putting pressure on producers to raise prices, Baum said.
Debt levels could be problematic because many Chinese factory owners plan to sell their property to developers if the business fails, but the real estate market is on the rocks, he said.
"If real estate is tanking, if there's no demand for manufacturing, somebody is carrying all the debt, whether it's banks, whether it's their shadow banking system," Baum said.