The newborn babies, many suffering from HIV/AIDS and malnutrition, were sold for between 50,000 yuan to 80,000 yuan ($8,000 to $12,912 dollars). The boys fetched higher prices than girls, according to the online video report published on Tuesday.
Babies were often transported in large handbags and suitcases to prospective buyers. And they were allegedly fed instant noodles and leftover vegetables, according to Chinese state media.
Authorities have arrested 103 people, suspected of trafficking or purchasing the infants.
Police spotted a suspicious group of pregnant women being ushered into an abandoned factory in the city of Jining, last July, where they found baby diapers and other evidence of it being used as an "underground delivery room."
"We noticed there has been some new developments in the methods for child trafficking related crimes," Chen Shiqu, director of the Ministry of Public Security's Anti-trafficking Office told CCTV.
"For example, some criminal gangs would send pregnant women who are about to give birth via public transport to another city. The babies are then sold after the women give birth," says Chen.
An investigator who was on the case said they detained seven suspects and found one baby nearly smothered under blankets in the run-down factory with squalid living conditions.
"At that time, the baby's face was already turning purple, if we didn't search through those blankets, that baby may have already died," said Liu Yang, a police investigator.
In a two-month sting operation following the raid, police discovered that the babies were often transported from the factory in bags to a hospital for infectious diseases in a nearby suburb where they were kept, awaiting buyers.
"Out of the 37 babies we rescued, almost none of them were healthy. All had varying levels of some sickness. They let the babies eat instant noodles," said Hou Jun, a local police officer.
One of the buyers, Liu Zhiyou said an agent told him it was an illegitimate child from a student.
Some of the babies have remained with their adoptive parents, while others are in orphanages. The 3-year-old was reunited with her mother, according to Chinese media.
According to Chinese law, child traffickers can be imprisoned up to 10 years for selling more than three children or sentenced to death in more serious cases.
Child trafficking has become a major concern in China, as traffickers seek to profit off a growing demand for healthy babies from potential adoptive parents both in China and beyond.
In March last year, Chinese officials uncovered four child-trafficking rings
and arrested more than a thousand people for using websites and instant messaging groups to sell babies.
A Chinese obstetrician was also convicted for selling babies
after telling their parents they were sick in early 2014.