As the CFO of China Wind Systems, a small U.S.-based company that makes forged rolled rings – an essential part of wind turbine gearboxes – for companies in China, Leo Wang is well acquainted with two of the biggest potential growth engines in the currently growth-challenged world.
On one hand, there’s China, which is increasingly viewed as the motherlode of future global consumer demand. On the other, the company’s a key player in the supply chain for the production of a source of clean, renewable energy - and on the list of currently used catch-phrases in conversations about the environment, “clean renewable energy” surely ranks high.
At the same time, Wang, a native of China with an MBA from MIT and a PhD in economics from the University of Oslo, bridges two worlds. Working for a company that raises capital exclusively in the United States but manufactures its product and distributes it only in China, he must communicate the ways of U.S. investors to his boss in China, while conveying the conservative financial outlook of a Chinese operation to markets here.
Formed in 2007 through a reverse merger, China Wind Systems used private placement funds to join with a U.S.-listed, Delaware-registered company with little in the way of operations called Malex. The ring manufacturer spawned $39 million in revenue in the 12 months between the third quarter of 2007 and the third quarter of 2008. (The company plans to report on the fourth quarter of 2008 and the entire year in early April).
The company has just completed what it calls its “phase one expansion.” The $15 million project - about half of which was funded in two rounds of private- investment financing -allows China Wind to shed its outsourcers and become a full-fledged, in-house maker of forged rolled rings and other components. The rings, about 9 feet across, are a key component of the gearbox, which enables wind to power the turbine’s generator. (Phase two, involving the manufacturing of other gearboxes and other parts, is expected to take two years.)
Wang was the company’s senior vice president of finance from August to December 2008, when he became CFO. In February, just a few days after China Wind Systems begun producing forged products at its new facility in Wuxi City, he sat down with a group of CFO editors to discuss the challenges of spanning two worlds of finance. An edited version of the conversation follows.
Do you think the investors in the United States get more excited about opportunities in China than Chinese investors get about investing in their own country?
It may well be. Investors in China and U.S. investors may have different perspectives about investing in a Chinese company. For the Chinese it’s a domestic company. It may not be as sexy. And more importantly, they may not fully appreciate the growth potential in the company because they look around – plenty of Chinese companies abound. But U.S. investors look to China. Here [in the U.S.], the market is very mature. Especially in the current market condition, opportunities are not very many and they’re not very good. Whereas, if you look at China, the growth potential is much higher compared to here.