The effectiveness of large language models (LLMs) to fact-check misinformation remains uncertain, despite their growing use. To this end, we present CANDY, a benchmark designed to systematically evaluate the capabilities and limitations of LLMs in fact-checking Chinese misinformation. Specifically, we curate a carefully annotated dataset of ~20k instances. Our analysis shows that current LLMs exhibit limitations in generating accurate fact-checking conclusions, even when enhanced with chain-of-thought reasoning and few-shot prompting. To understand these limitations, we develop a taxonomy to categorize flawed LLM-generated explanations for their conclusions and identify factual fabrication as the most common failure mode. Although LLMs alone are unreliable for fact-checking, our findings indicate their considerable potential to augment human performance when deployed as assistive tools in scenarios. Our dataset and code can be accessed at https://github.com/SCUNLP/CANDY.