There are two action plans that arise from this. First: How much money should one have in China? I'm a believer in small exposures to many things -- countries, themes and so on. Currently, I target China at 2% to 3% for clients, and I could see increasing that to 5% to 6% if indexes fall further.

That lending is now a source of worry is interesting. I've been writing for ages that I don't want financial exposure to China, which, unfortunately, rules out using the iShares FTSE/Xinhua 25 Index ETF ( FXI). Half of the ETF's assets are in financial firms. Even the SPDR S&P China ETF ( GXC) is very heavy at 33%.

That leaves two other ways into China. One is through individual stocks, of which there are over 100 to choose from on the Nasdaq and New York Stock Exchange. Another is with certain specialty ETFs. For example, the PowerShares Global Coal Portfolio ( PKOL) weights almost a quarter to China, the Claymore Solar ETF ( TAN) has 30% and the EGShares Energy Fund ( EEO) has 19%. Between stocks and specialty funds, it's easy to add Chinese exposure to a portfolio and still avoid the one sector that seems to be the source of concern.

The other action point is the realization that if a lending meltdown in China causes another major decline, it will, at least initially, bring down most of the other emerging markets in sympathy. That can happen in countries that seemingly have no fundamental connection to China. Such a drop could be fast and painful for people who learn the hard way that they had too much exposure. As the chart shows, in the past five years, the iShares Emerging Market Index Fund ( EEM) has doubled, while the S&P 500 is down 10%. For U.S.-based investors benchmarked to the S&P 500, it doesn't take 30% in emerging markets to add value versus the S&P 500.

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