Yep that's an interesting observation and one that isn't really discussed in economics, I suspect in the future that it will be. And its not unique to China or indeed Australia or any other country that when faced with producing goods at below cost (negative margins for a business) the production capacity is "sticky" in that it does not disappear instantly like the economic text books would imply.
Have a think about say car manufacturing in Australia as a related example to RAM's Chinese widget maker. Australian car manufacturing was effectively dead in the water by the 1960s/1970s with superior products coming in waves first from Japan and then Korea and soon China. But car manufacturing persisted right up to this year (but in vastly smaller scale and less economy of scale) and 'survived' the oil crisis, stagflation then inflation, American and Japanese ownership, import restrictions, increased use of robotic production lines, fixed exchange rates, removal of most of the government trade barriers, a floating exchange rate, superior competition from overseas and the Thai Free Trade agreement with the recent SUV craze among other game changing events on the way.
Think of all the money and effort expended to try to maintain this one business in a fairly insignificant small country like Australia over the decades just to provide some employment, and then think of the effort that a sole party communist state with a strongly centralized and politicized command and control economy and a massive urbanizing population will go to in the future to maintain full employment?
If you think the printing presses worldwide have been running hot since 2007 wait until you see what happens in the future! :shock: