BEIJING/DETROIT – Improved manufacturing data from China on Wednesday suggested its downturn may be bottoming out, but plunging U.S. auto sales underscored the depth of the recession in the world's biggest economy.
The grim news from Detroit came as U.S. President Barack Obama was set to impose a $500,000-a-year cap on executive pay at companies getting taxpayer bailouts.
A painful downturn that began in the rich world, where the United States, euro zone, Britain and Japan have already fallen into recession, has spread to emerging economies, with collapsing exports and faltering domestic demand hitting manufacturers hard.
But officials in China, the engine of world growth in recent years, say there are signs its economy may start to improve soon.
China's official purchasing managers' index (PMI) for January rose to 45.3, up from 41.2 in December and a record low of 38.8 plumbed in November.
Although the sub-50 reading indicated manufacturing was still in contraction, the index offered some support for the view the economy was gradually bottoming out or even starting to pick up.
"The January PMI data at least provide further support to our view that GDP growth should be stronger in Q1 2009 than in Q4 2008," said Mingchun Sun, an economist with Nomura in Hong Kong, in a note.
"China's GDP growth will be V-shaped in 2009, with the bottom already being reached in Q4 2008."
Hopes for a recovery in China helped lift Asian stocks between 1 and 3 percent. Shares in trade-sensitive shipping firms rose strongly after the Baltic Dry freight index, which measures the cost of transporting raw materials such as metals and grains by sea, posted its 11th straight day of gains.
MOUTH OF THE MONSTER
But data from the developed world has remained mostly gloomy, with a jump in unemployment in Spain and weak retail sales from the United States and Germany offering further evidence of a severe, synchronized recession.
The U.S. auto industry has been hammered because it depends on credit, which has not flowed freely for at least 18 months.
Figures on Tuesday showed industry-wide U.S. car sales tumbled in January to their lowest level since 1982, falling below China's for the first time.
The two U.S. automakers struggling to restructure under a $17.4 billion government bailout fared worst, with Chrysler LLC posting a 55 percent plunge in sales and General Motors sales falling 49 percent.
"We're in the mouth of this monster, and we have a lot of work to do," Chrysler sales chief Steven Landry said.
A U.S. official said Obama would later on Wednesday lay down rules on executive pay at banks and other firms receiving government aid as part of a multi-pronged effort to overhaul financial regulation and revive the economy.
Citigroup, one of the biggest recipients of emergency cash, said it would use $36.5 billion in bailout money to boost lending through government-backed loans.
"The government is the invisible hand at Citigroup now. You have to believe that on big strategic decisions, they are having an influence," said Walter Todd, portfolio manager at Greenwood Capital Associates.
STIMULUS, AND MORE STIMULUS
Governments around the world have responded to the biggest financial crisis since the Great Depression by pumping public money into their sagging economies, as central banks have slashed interest rates and sought to revive choked credit markets.
Australian retail sales surged in December, data showed on Wednesday, indicating pre-Christmas government handouts of $5.5 billion had encouraged consumer spending.
"The sales numbers really highlight that the stimulus package is working," said Warren Hogan, head of Australian economics at ANZ. "If it's one of the government's goals to avoid two consecutive quarters of contraction, they may achieve that."
Australia on Tuesday announced a second dose of fiscal stimulus worth $26.5 billion, bringing the total package to more than $49 billion or nearly 8 percent of GDP, as it tries to stave off its first recession since the early 1990s.
China unveiled an eye-popping $585 billion spending plan in November, and central bank governor Zhou Xiaochuan said in remarks published on Wednesday that the pump-priming had had a positive impact.
"According to the economic figures for December, the domestic stimulus policies have achieved initial results," Zhou told the Financial News.
Zhou's comments on the economy were similar to those of Premier Wen Jiabao, who said in London at the weekend that he had seen signs of a revival in the Chinese economy in the last 10 days of 2008.
Another sign that Beijing's efforts were bearing fruit came in a report that Chinese banks had answered the government's call for easier credit and extended a monthly record of 1.2 trillion yuan ($175.5 billion) in new loans in January.
The biggest stimulus plan of all is in the United States, where lawmakers were debating a nearly $900 billion package that was likely to receive Senate approval later this week despite a fight over how best to spend the money..
Obama has been trying to convince Americans that new government spending is urgently needed.
But with many people still seething over a $700 billion bank bailout, the stimulus package has met with some resistance.
A group of Senate Republicans offered a $445 billion alternative plan for boosting the economy, with about half of that coming in the form of tax cuts.