The likes of Carlos Tevez, Oscar, Willian and Axel Witsel have joined various Chinese clubs in the last month on lucrative salaries, joining stars such as Hulk, Demba Ba and Papiss Cisse who had already made the switch.
Watzke thinks that China will remain on the transfer window periphery when it comes to the premium picks in the market, however, and suggested that those who do go there lack ambition and are just doing it for the money.
"No, China won't be able to buy football's best stars," the 57-year-old told Bild. "Tevez is also in the final stages of his career.
"If the Chinese Super League has decided that it wants to make older professionals even richer, then so be it.
"But I can not imagine that an extremely ambitious, reasonable player - who is not yet at his peak or in their mid-20s - would go to China. I would be very critical of this.
"Of course football is at risk of becoming broken; we have to take care that this does not escalate even further up and the bubble bursts. There can be no question of that.
"There used to be only three or four leagues who could bid such high sums. Globalisation has made it so that even China or Qatar can compete financially. Everything has changed... [but] at some point madness will calm down again."
Watzke, who has been Dortmund CEO for 12 years since being appointed to turn around a financial crisis, stopped short of criticising the salaries earned by the world's best players, though, whom he believes deserve their lucrative wages.
"I only get a headache over wages when I feel that the money is not justified," he said, "but I also have the feeling that with the football quite money is earned."
Insinuating that British clubs pay over the odds for players, he added: "There is no reason for US investors to invest in the Premier League. The shareholders of Bayern Munich or Borussia Dortmund do not have the feeling that no money can be earned here.
"If there were losses, that would be different but the Bundesliga is an economic success story. Football fans must feel that their team's players are earning their money; that's the most important thing."
Dortmund are currently on their winter break and recommence the 2016-17 campaign on January 21.
Thomas Tuchel's side are placed sixth in the Bundesliga, 12 points adrift of leaders Bayern Munich and nine points off newly promoted RB Leipzig.