Surely 1949, when Mao Tse Tung took power in China, was worse.
While it certainly seemed terrible at the time, it may have been to America's benefit to not have to prop up a thoroughly corrupt and illegitimate state that was attempting to be sovereign of all of China. Kennan was no fan of the KMT and distegarded China in his assessment of America's Asian defense strategy. Additionally, Americsn policymakers early on entertained the idea of peeling China away from the USSR in time.
To be fair, though, American anxiety in the late 70s may also have been substantially psychological, though I'd regard the loss of Iran as an immense setback on its own in several spheres.
1.The North Korean invasion of China was a direct result of the Communists coming to power in China.
2.The Shah was as thoroughly corrupt and illegitimate as the KMT was.
The Shah was a benevolent dictator, he wanted to be loved by his people. He was too soft to order a crackdown on the protestors, and needed reassurance from the President. Carter was a big champion of human rights, and refused to endorse a crackdown. If Regan had been won in 1976, he probably would have advised the Shah to crackdown violently.
