OK, knocking noise solved. I thought it was the BB, but frankly everything seemed tight and the bottom bracket and cranks seemed to be OK quality. So I turned my attention to the rear wheel. I removed the wheel and the freewheel (which I earlier said made too much noise while freewheeling) seemed loose. I could grab the largest cog and move the entire freewheel about .5 to 1mm. The freewheel brand is "Fleaby", whatever that is.
So, I replaced the cheap freewheel with a Shimano MF-TZ20 and problem solved!
I have $220 invested in this bike and it seems to tick all my boxes. I'm happy, and I urge others looking for a decent quality, low cost folder to consider this bike. The only issue I can see is there's only one color.