The thinly traded Global X China Technology ETF ( CHIB) is not a spectacular pick for investors, given the lack of interest in its shares, but its portfolio has solid exposure to companies that will cash in on smartphones running Google's ( GOOG) Android operating system and benefitting from a more accessible Internet.

CHIB launched roughly the same time as Claymore/AlphaShares China Technology ( CQQQ). While I continue to favor CQQQ as a pure technology ETF, CHIB's large telecom exposure, previously a handicap, is now a strength thanks to the emerging smartphone market.

China announced a telecom restructuring in 2008, which shook up the industry and created a third wireless competitor to China Unicom ( CHU) and China Mobile ( CHL). The industry was hammered by the associated costs of restructuring and new regulations, and the stock prices of the companies involved declined.

Overall, this episode highlighted risks inherent of investing in state-owned enterprises (SOE); such risk is one reason why I have consistently favored Claymore/AlphaShares China Small Cap ( HAO) over iShares FTSE/Xinhua China 25 ( FXI). The government can step in at any time and change the rules on an industry, something that has hit the other sectors before. However, with SOEs, the government can also change the management and the company's assets and business lines.

Assuming investors opt for HAO over FXI to satiate their China exposure needs, the former is notably low on telecom exposure. Additionally, although HAO maintains some technology exposure at 12% of assets, I feel that a Chinese ETF should cover this fast-growing sector to a greater degree. With telecom restructuring in the rearview mirror, investors can focus on the future: smartphones.

Here's what's developing in the China smartphone market. Taiwanese chip maker Mediatek, a top 10 holding in iShares MSCI Taiwan ( EWT), is targeting the low end of the consumer market in China with a new Android chipset. Whereas iPhone 4 will cost a Chinese consumer more than $1,000 dollars (The minimum wage in Shanghai, China's richest city, comes to about $2,000 per year), the Mediatek chips will be in phones that cost one-tenth that amount, yet carry nearly all the same functions and applications.

Android is an open-source operating system, and China Mobile has worked on making the Android operating system more hospitable to China's market, dubbing the operating system OPhone. Lenovo is already selling a device called the OPhone in China and Motorola ( MOT) has also launched a phone using this software.

China Mobile hopes that these phones will lead to revenue from its apps store, where it takes 50% of sales. However, whether China's users pay for content via the app store or download it elsewhere is an open question, which hardly makes this a slam dunk for China Mobile.

Not to be left in the dust, China Unicom is planning a uPhone operating system and a Unistore for applications.

The latest news is that Baidu ( BIDU) is looking to push Google search off Chinese phones running Google's operating system. Baidu has also teamed to integrate search capabilities with the Symbian operating system, used on many phones from Nokia and currently running on many smartphones in China.

CHIB has hefty, but balanced, exposure to the aforementioned firms. Number-one holding CHU has 5.7% of assets; BIDU accounts for 5.5%, Lenovo 5%, China Mobile 4.7% and ZTE, a maker of Android phones and network equipment, accounts for 3.6% of assets. Combined exposure comes to nearly 25% of assets.

In addition to these firms, CHIB also holds several Internet companies such as Sina ( SINA) and Sohu ( SOHU) that will benefit as smartphones make the Internet more accessible in China.

Unfortunately, this fund is thinly traded and unpopular with investors right now. China ETFs have performed poorly in the past six to nine months. The Shanghai index of A-shares peaked in Aug. 2009 and in Jan. 2010, HAO was the last of the broad China funds to peak. That performance has made China sector investing relatively unpopular, with a couple of exceptions.

In this situation, CHIB needs three things to happen. To begin with, the Chinese share market must pick up across the board. Secondly, the smart phone story needs to turn into profits for these companies. Finally, investors need to be attracted to the fund in order for an increase in trader volume.

Due to CHIB's dangerously low volume, investors need to watch the NAV of the fund and use limit orders when buying. Also, realize that it may be difficult to pull out of the investment if liquidity doesn't increase and you want to quickly exit a position. As of 11:30 this morning, volume was 0 shares.

The catch here is that if things go well for the underlying companies, liquidity won't be a problem. If they go poorly, then the liquidity will remain a problem.

There are a couple of ways around this dilemma, though. Since several of these firms trade in the U.S., one way around the situation is to obtain exposure through individual holdings.

Another option is to buy Claymore/AlphaShares China Technology ( CQQQ), which maintains volume about six times larger than CHIB's (although it is still considered rather low, as compared with other funds). CQQQ has 9.7% in BIDU, 4.4% in Lenovo and 3.7% in ZTE. Since CHU and CHL are heavily traded shares on the NYSE, adding a small position in one or both of them could round out a position that would be similar to holding CHIB.

Also, since CQQQ is already the volume leader between these two ETFs, should both funds start performing well, investors may gravitate to CQQQ.

Depending on the amount of money to be invested, splitting it between several purchases could end up becoming more expensive than the cost of a single trade plus the 0.65% annual fee for CHIB or the 0.70% fee for CQQQ, so investors need to pay attention to their total cost.

ETFs have opened new markets to investors, but sometimes even solid indices with good performance or a unique portfolio fail to attract investor capital. I like the story here and CHIB is the one ETF best positioned for it, but ultimately it's up to individual investors to decide how best to play it.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.

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