Did you know that there's a military-style financial recovery operation under way in China? Probably not, but it's true.

China has one choice right now: Save the U.S., or watch their economy collapse.

The U.S. economy has already gutted the profits of low-cost Chinese electronics, toy and furniture producers who employ millions of workers. And a further slowdown in the U.S. economy could result in billions in even greater capital losses that could affect the Chinese economy for years.

That's why Chinese Premier Wen Jiaboa met with U.S. Secretary of State Condoleezza Rice recently. They sat down to outline the measures that China is taking to safeguard its own economic development and to outline their efforts to boost the U.S. economy.

This plan could create greater growth between the two countries and make investors richer if they're investing in the right China plays.

Please note, I said the right China plays. There are plenty of wolves in sheep's clothing out there just waiting to snag your hard-earned money.

China Investments to Avoid

China's unprecedented economic growth and a struggling U.S. economy has caused investors to flock to its investments, trusting naïve fund managers or advisors who don't understand the true dynamics of investing in China. In turn, many of these investors lost a lot of money.

But don't let this keep you from investing in China. If you know what to avoid, you can make a fortune in China stocks (see also, "Investing in China: Separating Fact From Fiction"). Let me briefly explain what you need to be avoiding.

In general, what you want to avoid falls into two categories: 1) Chinese stocks that are dangerously vulnerable to market or government pressures; and 2) American stocks wrongly hyped as "China plays."

First, most state-owned enterprises (SOEs) are bad investments. They're corporations owned by the Chinese government and publicly traded. But the private sector has replaced SOEs as the primary economic growth engine in China, and these SOEs don't stand a chance of competing against these more effectively run businesses. I'm expecting at least half of China's SOEs to be obsolete in the next decade if they don't make necessary changes to compete in the current marketplace.

Secondly, you should avoid stocks listed in Mainland China. Hong Kong's Hang Seng index offers a more favorable investment environment–year to date, the Shanghai stock exchange has lost 47%, while the Hang Seng index has only dropped 18%. Plus, the Mainland Chinese indexes are packed full of SOEs.

Also, the Mainland Chinese stock markets include poor-quality companies, while China's top publicly-traded companies are listed in Hong Kong and New York. The companies listed in Shanghai and Shenzhen are unable to meet the more rigorous accounting and corporate governance standards that are required in Hong Kong and New York.

And thirdly...