It’s not easy to turn a penny into $10 — or, in this case, $400,000 into $40 million — but a couple of avowed empire builders, James Wang, 45, and Marc Siegel, 47, the CEO and president, respectively, of China Direct, have done just that. Much of their success can be attributed to a rampaging Chinese stock market, which with each passing day is becoming increasingly reminiscent of Wall Street’s ultra-speculative Internet craze of the late 1990s. That’s when online and technology shares, sporting astronomical price-earnings in multiples of 100 or more, went through the roof before ultimately collapsing in what became one of this country’s biggest investment bloodbaths.

While some pros insist a similar blowup in the Chinese market is merely a matter of time, Wall Street for now, at least, is giving China Direct the benefit of the doubt, bidding up the price of its shares more than 200% since its initial public offering in August.

The shares, 18.5 million of them, began trading on the American Stock Exchange at $4, later shooting up to a high of $12.95, and closing Friday at $9.90. The actual float is about 7.5 million shares.

China Direct, an American company incorporated in January 2005, is basically what could be called a venture capitalist firm. Focusing on natural resource companies, it buys a controlling interest in cash-constrained mid-size Chinese companies, principally in areas of the country ignored by institutional investors. It then provides them with capital and management expertise in an effort to speed up their growth.

As Mr. Siegel explains it: “Utilizing our cash and advice, we want to take the companies to the next level.” Companies in which it acquires stakes are at least five years old and China Direct’s goal is to raise its historical sales and earnings growth rate to 35% to 40% from 10% to 20%. At present, it has interest in four companies involved in such areas as magnesium, chemicals, zinc, and alternative energy. So far, China Direct’s bottom line is humming. Last year, it earned $135,000, or two cents a share, on sales of $14 million. In this year’s first six months, earnings ran $4.1 million, 27 cents a share, on sales of $71 million. For all of 2007, Mr. Siegel projects a net of $8.25 million, or 50 cents a share, on a volume of about $150 million. For next year, he projects earnings of 70 cents to 80 cents a share on sales of around $200 million.

The company, which has about $20 million in cash for expansion purposes, is in talks with a number of investment bankers to raise additional financing. It is also talking to a group of Chinese companies in which it might take new stakes, including companies engaged in oil wholesaling, solar energy, information technology, and lumber and paper.

Where does China Direct go from here? “We’re looking to build a billion-dollar company,” Mr. Wang says.

Whether that exalted goal has any merit or is simply another corporate pipe dream is anybody’s guess, but the stock’s meteoric rise has already attracted some skeptical short sellers. One skeptic said: “You’re not talking about a dramatic new product, but simply another venture capital project which is as common these days in China as rice. If financing, for any reason, were to dry up, this company could go the way of the hula hoop.”

Yet another danger is said to be the possibility of a big sell-off in the Chinese market, as was the case last February 27, when it tumbled 9% in one day due to excessive valuations. The Chinese market, which is rampant with 50 p/e ratios, rose 130% last year and is up more than 100% this year.

Meanwhile, early investors in China Direct have cleaned up. To date, Mr. Siegel notes, some have made anywhere from four to 12 times on their money.

Mr. Siegel, a former branch manager at Lehman Brothers, and Mr. Wang, a former professor at the University of Minnesota, have also participated in this windfall, with each owning 4 million shares — now worth nearly $40 million — at an average price of about a penny a share. “We got lucky,” Mr. Siegel says. “We were in the right place at the right time.”

The big question, of course: Will their luck hold? Wall Street is littered with the blood of avowed empire builders, and Wall Street warnings about overvaluations in the Chinese market grow by the day. On the other hand, some Wall Street people I respect have been telling me for more than a year that the Chinese market is an accident waiting to happen, and all it does is keep going up.

dandordan@aol.com