Cut cheese into slices 1/2" thick and the length of the chili. Make a small slit in chili just big enough to insert cheese (you can also poke in some slivers of onion at this point). Dip in batter and fry in hot oil or lard until golden brown. Drain and serve. May be garnished with green chili sauce if desired.
To make batter, combine flour, baking powder, salt and cornmeal. Blend milk with egg; then combine milk and egg mixture with dry ingredients. Add more milk if necessary for smooth batter. Using a spoon, dip stuffed chilies in batter.