Korea earlier drew 1-1 with Vietnam in their opening match on March 20, marking another disappointing result.
The junior Taeguk Warriors entered the tournament to prepare for the 2026 AFC U-23 Asian Cup qualifiers, set to take place in September.
The loss to China marks the first defeat at the hands of their U-23 team since June 19, 2023, with a 1-0 loss in a friendly match in Zhenhua. Historically, Korea has dominated China at the U-23 level, with 13 wins, three draws and three losses.
Korea will face Uzbekistan in their final match of the tournament on Tuesday.
The team remains without a permanent head coach, with interim coaches Lee Chang-hyun, Cho Se-kwon and Kim Dae-hwan leading the squad during this tournament.