With the seemingly worsening crisis of property developer China Evergrande (OTCMKTS:EGRNF), it may be time for investors to at least consider reducing exposure to companies tied to the world’s second-largest economy. Late last week, the Wall Street Journal reported that Evergrande failed to make a scheduled interest payment last Thursday, sparking concerns about a mass exodus from Chinese stocks.

It’s fair to wonder — how could one company lever such an impact on the biggest growth story in memory? As it turns out, Evergrande may represent how China’s success may become its worst enemy, posing serious thoughts about stocks to sell. Primarily, as an excellent WSJ article and accompanying video explains, Evergrande raised money through loans from investors and financial institutions. Later, it presold unfinished apartment complexes, thereby raising more capital to buy more land.

Well, the problem is largely two-fold. First, people generally tend to prefer living in finished residential complexes. By preselling and borrowing more money for more presales, this business model can only function so long as the work eventually gets done. Unfortunately, the novel coronavirus pandemic — along with a draconian governmental response — scuttered this tenuous supply chain. As a result, Chinese stocks to sell are on most folks’ radar.

It’s not just that Evergrande could possibly default on its massive debt obligations. It’s that citing analysis from Nomura, the WSJ reports that the Chinese property market accounts for 25% of the Asian juggernaut’s total economic activity. With Evergrande playing a pivotal role in the property market — with its reach expanding throughout China — the raging bull may suffer a possible Lehman Brothers event.

Now, we’ve got to be careful about invoking what appears a hyperbolic comparison. But CBS News reports that if a possible Evergrande default leads to lenders and bondholders absorbing massive losses, it could spark a domino effect that could ripple throughout the global financial network. Therefore, it’s probably wise to at least trim some exposure to these Chinese stocks.

• Alibaba (NYSE:BABA)
• Baidu (NASDAQ:BIDU)
• BYD (OTCMKTS:BYDDF)
• Yum China (NYSE:YUMC)
• China Construction Bank (OTCMKTS:CICHY)
• Agricultural Bank of China (OTCMKTS:ACGBY)
• China Southern Airlines (NYSE:ZNH)

To be completely fair, not everyone is onboard with the China’s Lehman Brothers analogy, including the man who warned people about Evergrande, Andrew Left of Citron Research. After getting blown up on a meme trade gone wrong, Left may now be back on retail investors’ good graces. Although Left believes the recovery process could be ugly, he doesn’t think the problem is endemic across China. That’s one reason not to get too crazy with your mitigation approach toward Chinese stocks. At the same time, it’s not as if China is the most transparent country in the world. Be cautious and, as always, perform your due diligence.

Chinese Stocks to Sell: Alibaba (BABA)

As the flagship among Chinese stocks, Alibaba tends to ebb and flow with the underlying fortunes of its home market. Throughout its time as a publicly traded entity, BABA stock has performed very well for investors. But as the Evergrande crisis unravels, leading to what many global investors fear is a financial nuclear fallout, the e-commerce and technology giant is staring at a decisive paradigm shift.

On the final session heading into the weekend of Sept. 25, BABA shares dropped 4%. Unfortunately, the red ink is nothing special, with the equity unit looking like a shell of its former self. On a year-to-date basis, BABA has dropped 36% while over the trailing year, it hemorrhaged over 46%.

Now, the contrarian in you might say this is a time to get greedy while others are fearful. However, the counterargument to this common thesis is that in the face of a major catastrophe, the circumstances surrounding BABA and other Chinese stocks could get much worse. Therefore, you might want to take some profits off the table to cushion what could be a bad blow.

Baidu (BIDU)

Under ordinary circumstances, Baidu would likely not constitute Chinese stocks to sell; indeed, the sentiment would probably go the other way. A multinational tech firm specializing in internet-related services and products, Baidu keeps China’s society moving in a similar manner to Google under Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).

Further, when it came to mitigating the novel coronavirus, Baidu’s entertainment division — which includes news, content and gaming-related programs — helped keep people sane during the lockdowns. Better yet, the narrative translates into results, with the company posting revenue of $4.9 billion in the second quarter of this year, up nearly 33% year-over-year.

Additionally, in the trailing-12-month (TTM) period, Baidu is looking at nearly $18 billion in top-line sales, which would beat 2020’s full-year result by an almost 10% margin. Unfortunately, that hasn’t been enough to give the firm an exemption from the Chinese government’s crackdown on its tech sector.

Now you’re adding big concerns over the viability of Chinese commercial paper? While I’m not suggesting you should sell all your BIDU holdings, a little trimming might be in order.

Chinese Stocks to Sell: BYD (BYDDF)

Amid the backdrop of excellent technical and financial performances, I’m not about to say that automotive firm BYD is one of the Chinese stocks to sell. Rather, this is purely a discussion about risk mitigation. After enjoying robust gains since the lull period of May earlier this year, it just might be time to take a few bucks off the table.

Of course, I’m taking an extremely careful approach here because of BYD’s numbers. As CNBC pointed out a few weeks ago, the company printed some impressive ones, selling “61,409 new energy vehicles in August, more than four times the amount sold a year ago, as demand for electric cars continues to rise in the world’s largest auto market.”

Moreover, it was “also a rise from the 50,492 cars sold in July.” Again, in any other circumstance, you probably wouldn’t think about considering BYDDF as one of the Chinese stocks to sell.

But this is not any other circumstance. So much of China’s economy is tied to the property development industry, which could have a ripple effect on electric vehicle demand. If you’re not going to trim, you should at least tread carefully.

Yum China (YUMC)

While the Evergrande crisis has devastated many Chinese stocks, not all have been quite so volatile. In fact, some have even risen during this tumultuous period. For instance, in the trailing five days from the Sept. 24 session, Alibaba shares have shed 6%. Fast-food giant Yum China, on the other hand, gained nearly 8% during the same frame.

Could this be one of the names that move against the grain? It’s possible, though I’m going to be very cautious given the broader performance.

Recently, Yum China warned that “adjusted operating profit would take a 50% to 60% hit in the third quarter as the spread of the Delta variant in China caused more than 500 of its restaurants to temporarily close or only do take-away business.” Not surprisingly, that sharply brought down YUM stock.

To its credit, management is shifting its business focus to markets where the cost of living isn’t so extreme, thereby allowing its residents to spend more on modest frivolities like fast food. However, if the pandemic deeply impacted Yum China’s business, even a mini-Lehman Brothers’ event could crimp the fast-food industry.

Chinese Stocks to Sell: China Construction Bank (CICHY)

The more I assess the damage from the Evergrande liquidity crunch, the more I come away with the impression that the firm became nothing more than a giant Ponzi scheme. NPR.org highlighted many individual stories of people who had fronted cash for pre-finished residential units, only to be later faced with the prospect of losing all their money. Per one of its interviews with an Evergrande client: “‘It did strike me as weird that Evergrande wanted the cash up front. I did not know then that they were so desperate for money,’ Wu says as she walks her dog outside her uncompleted building in Taicang’s Cultural City project. The mixed-development project, an hour’s drive from Shanghai, has been halted mid-construction as Evergrande scrambles to pare down its debt under orders from Chinese regulators.”

Based on the evidence, NPR believes that the Evergrande incident could be a drag on China’s economy. Again, as the details come in, it’s difficult to argue against the point. That’s why I think investors who happen to be involved with China Construction Bank should consider de-involving themselves.

As one of the big four banks in China, risks to the system there could negatively affect CICHY. Therefore, I’d start trimming some exposure while waiting for additional guidance.

Agricultural Bank of China (ACGBY)

While probably most investors are taking an extremely vigilant approach to Chinese stocks in light of the circumstances at Evergrande, it must be clearly pointed out that the property developer not making good on its scheduled interest payment last week is not an automatic sign that it’s going to default.

Per the WSJ, the “company could make the payments belatedly and it has a 30-day grace period before bondholders can call a default.” At the same time, a “missed payment would set the stage for what could be the largest-ever dollar-bond default by a company in Asia.” Therefore, the potential impact to Chinese stocks could be severe.

Against this context, I can’t imagine too many stakeholders of Agricultural Bank of China are thrilled to the pieces about the latest developments. Per a report from Euronews.com, “Agricultural Bank of China (AgBank), the country’s No.3 lender by assets, has made some loan loss provisions for part of its exposure to Evergrande, one of the executives said, without giving details.”

With so much commercial paper at risk, the smart move is to lessen exposure to China’s financial industry.

Chinese Stocks to Sell: China Southern Airlines (ZNH)

To my knowledge, China Southern Airlines has really nothing to do directly with the Evergrande situation. Nevertheless, if the wheels start to fall off and the property developer enters a bona fide default, I can see how China Southern could succumb to turbulence.

While debates rages about whether the current dark cloud hovering over Chinese stocks will lead to a Lehman Brothers-type event, what is clear is that so many regular people are affected from the possible default risk. As I mentioned earlier, Evergrande presold residential complexes before they were completed — and personal testimonies from the company’s victims reveal a substantial amount of wealth being fronted.

If the liquidity crisis is as bad as it looks, China’s consumer sentiment will almost certainly slip, which will be incredibly problematic for China Southern Airlines. Over the years, the country’s tourists have developed a reputation for their incredible purchasing power. But with the commercial paper situation unfolding badly, tourism demand might tumble.

While ZNH is absorbing the situation reasonably well right now, this is one of the Chinese stocks to be skeptical about.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.