Speeding up

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FIRST, the good news. According to preliminary estimates from the Bureau of Economic Analysis, American economic growth continued to accelerate as expected in the fourth quarter of 2010. Real GDP expanded at a 3.2% annual pace, up from 2.6% in the third quarter and the fastest pace since the first three months of the year. This was the sixth consecutive monthly expansion, and it pushed the American economy above an important psychological threshold: real output is finally, at long last, above the pre-recession peak. It only took three years to regain that ground.
The 3.2% rate was a little less than the 3.5% economists had forecast, but this is the preliminary release; two further revisions will occur in the months to come. The biggest boost to growth came from accelerating growth in personal consumption, the lion's share of which was from purchases of durable goods. Consumer spending was up at a 4.4% annual pace (compared to 2.4% in the third quarter). Of the 3.2% total growth pace, 3.02 percentage points were contributed by personal consumption.
Gains were also attributable to a nice improvement in exports. Net exports contributed positively to growth for the first time all year. But for the first time in almost two years, federal government spending joined state and local spending as a drag on growth. This trend will continue; generally speaking, future growth will have to come despite government cuts rather than thanks to government supports. Meanwhile, the Fed got little to worry it on the inflation front. Its favoured inflation measure—the core price index for personal consumption expenditures—came in at a 0.4% annual growth rate. That measure has declined steadily from the fourth quarter of last year.
So what about the bad news? Well, given the size of the output gap—for now, about $800 billion separates actual and potential real output—the economy should be growing faster. For 2010 as a whole, output expanded by 2.9%. That's the fastest growth since 2005, but at this point in the early 1990s business cycle annual growth was up (despite a smaller output gap) at a 3.4% pace, and at this point in the early 1980s cycle annual growth was roaring ahead at 4.5%. Current growth is consistent with a painfully slow reduction in the unemployment rate. Forecasters anticipate a further acceleration in 2011, perhaps to an annual rate near 4%. The jobless can only hope such predictions come true.
And they well might. Both consumption and investment have been very depressed for the past few years, and a continued rebound would not be surprising. Meanwhile, it seems likely that America's trade balance will continue to improve, which would provide additional support for growth. The big continued question marks concern the problems in government budgets—how much a drag on growth they will ultimately represent—and the labour market. If growth begins translating into an acceleration in hiring, that could change the psychology around the economy, fueling spending and investment. And then recovery might finally resemble the V-shape one would expect after such a long, deep, and painful downturn.

Mobile services in poor countries

Not just talk

Clever services on cheap mobile phones make a powerful combination—especially in poor countries

COUNTERFEIT drugs can make up around a quarter of all those sold in poor countries, according to some estimates. They provide a lucrative and lethal business, against which most consumers are powerless. “If your anti-malaria pill is made of any old white powder, you may not survive,” says Bright Simons, one of the founders of mPedigree, an advocacy group from Ghana.
Mr Simons is not just fighting with words. Late last year mPedigree launched a mobile service in Ghana and Nigeria that could make a dent in the fake-drug trade. People buying medicine scratch off a panel attached to the packaging. This reveals a code, which they can text to a computer system that looks it up in a database. Seconds later comes a reply saying whether the drug is genuine. The service is paid for by pharmaceutical companies that want to thwart the counterfeiters. Hewlett-Packard runs the computer system and found a cheap way to print the scratch-off labels.
This is just one of many such services mushrooming in poor countries, using mobile-phone technology that once carried only humble voice and text messages. Rohan Samarajiva, the boss of LIRNEasia, a think-tank in Sri Lanka, calls it “more than mobile”. Jussi Hinkkanen, Nokia’s head of policy in Africa, says the mobile revolution is moving “from ear to hand”.

The number of users is still small: even among young people in South-East Asia (a tech-friendly lot) only 8% had used “more-than-voice” services, according to a poll by LIRNEasia. But the potential is exciting. Mobile phones are the world’s most widely distributed computers. Even in poor countries about two-thirds of people have access to one (see chart 1). As a result, such devices and their networks, though mainly still much simpler than in the rich world, have become a platform on which many other services can be built. This boosts innovation—just as smartphones and faster wireless data networks have led to an explosion of mobile applications (“apps”).
Classifying mobile services in poor countries is not an exact science. Richard Heeks, director of the Centre of Development Informatics at the University of Manchester, sorts them by their impact on development. One category is services that “connect the excluded”. In their simplest form they provide information to those who would otherwise be out of the loop. Farmer’s Friend in Uganda, for instance, sends out market prices and other agricultural information in text messages.
Such services have been around for some time, but they have become more common—and much more varied. Nokia now provides its Ovi Life Tools, a set of information services from weather to sport, to more than 6m users of its handsets in China, India, Indonesia and Nigeria. Esoko, a Ghanaian “communication platform”, in the words of Mark Davies, its founder, allows two-way communication: people and businesses in 15 African countries can upload their own market or other data, which then become accessible via the internet and mobile phones.
Mobile trading platforms are also in this category. At first most of them focused on agricultural goods: Dialog Tradenet in Sri Lanka lets farmers check market prices and text in offers, helping them to time their harvest to maximise income. But many, including Dialog Tradenet, have other things on offer. In India, Babajob.com lists low-skilled jobs. The most popular items on CellBazaar in Bangladesh are second-hand mobile phones. For people with some cash to spare, KenyaBUZZ, one of the larger local websites in east Africa, is selling tickets for cultural and sports events over the phone.
Mobile phones can also spread learning. In Bangladesh the BBC World Service Trust sponsors a service called BBC Janala that allows people on a few dollars a day to improve their English. After dialling “3000”, they can listen to hundreds of English lessons and quizzes, updated weekly. Mobile operators charge about two cents for each three-minute lesson. Since BBC Janala was launched in November 2009, 3.1m people have used it.
Researchers in South Africa working for SAP, a software giant, are trying to connect very small businesses, which make up a large part of Africa’s economy. One service lets craftsmen create a virtual job docket with a few texts or touches on a smartphone, even without mobile-network coverage. The information is uploaded to a computer system later. Another allows rural stores to order goods, saving time-consuming trips to city markets.

A second category of services includes those that cut out the middleman, or at least keep tabs on him. This is especially helpful in using government services. In the Indian state of Karnataka, corrupt officials would often demand a bribe before issuing landownership certificates, which farmers need, for instance, to obtain a loan. The Bhoomi project helps them directly, by using the internet and mobile phones.
Disintermediation is also made possible by mobile money. Services to transfer cash by text message have been around for some years. One of the most successful, M-PESA, began in 2007 in Kenya, where it now has more than 13m users. It is now used for salaries, bills, donations: few things cannot be paid for via a handset. Similar services can be found in more than 40 countries. Though not yet on the same scale, this seems to be only a question of time: in most countries in sub-Saharan Africa, more people have a mobile phone than a bank account (see chart 2).
Other firms are extending the reach of mobile money. Software developed by Tagattitude, a French start-up, uses a handset’s sound channel to transmit money and will be used by several banks in Africa. A Little World, an Indian firm, has combined several pieces of technology to create a “branchless microbanking system” to allow people in remote areas to withdraw cash. A fingerprint reader identifies them and the sum is deducted from their accounts via a special handset. A small printer produces a receipt. The system already has more than 3m users in India. In Andhra Pradesh it directly disburses welfare payments and pensions.

Money on the move in Kenya

The sound of the crowd, texting
A third, perhaps even more promising category is “crowdvoicing”. Ushahidi, founded by a group of activists in Kenya, is among its pioneers. After the country’s disputed elections in 2008, Ushahidi (which means “testimony” in Swahili) mapped reports about violence, most of them text messages, on a website. Now the organisation offers software and even a web-based service to monitor anything from elections to natural disasters. Similarly, text-messaging software called FrontlineSMS collects and broadcasts information.
Such techniques are increasingly applied in other areas, particularly health. Stop Stock-outs, another African group, has used Ushahidi to map where essential medicines are sold out. By checking whether a drug is genuine, users of mPedigree and another Ghanaian service called Sproxil provide real-time data about which illnesses are on the rise (and can be sent more information as needed). In Mali a company called Pesinet gets agents to send in the weight of newborn babies. If the figure falls below a certain level, the baby is examined more closely.
Then there is txteagle, which hopes to reward those willing to perform small jobs on a mobile phone. Its founder, Nathan Eagle, discovered that nurses in Kenya were much likelier to text in the stock levels at their blood banks if they were compensated with a bit of airtime. This got him thinking about whether other tasks could be “crowdsourced” in this way. Today firms use txteagle for translating words into a local dialect and checking street signs for a satellite-navigation service. Mr Eagle hopes that the service will spread far, in particular to Asia.
A fourth and last category hardly exists yet, but could prove the most important, says Mr Heeks: platforms that allow the world’s poor to “appropriate the technology and start applying it in new ways”. One small example is “beeping”: hanging up after a single ring. First used to signal that someone wants to be called back because of lack of credit, it has become a free messaging system. In some countries, street hawkers assign special ringtones to different customers, which are in effect free messages placing orders.
In rich countries, online stores for smartphone apps gave digital innovation a boost. LIRNEasia’s Mr Samarajiva hopes that something similar will happen in the poor world. An early example is AppZone in Sri Lanka. It allows developers to create, test and sell applications, while operators promote them to their customers.
The list will certainly get longer. Whether such services will be commercial successes is another question. Having looked at 400 mobile businesses, the Monitor Group, a consultancy, concludes that too many are dependent on donor money. Social entrepreneurship often muddles demand and need, says Jan Schwier of Monitor. The fact that an African smallholder needs prices for his crops on his mobile does not mean he will pay for them.
Not many services are set up to grow, says Brooke Partridge of Vital Wave Consulting, which advises businesses in emerging markets. Providers lack technology, money and market knowledge. “We don’t need more new services, but a better focus on commercialisation,” she says.
For others bureaucracy, taxation and bad regulation are the obstacles. In many African countries providers of new mobile services cannot deal with network operators directly, but must use intermediaries to get, for instance, a short code for customers to dial. Governments also use mobile networks as cash cows. A study in 2008 by the GSM Association, an industry group, found that the ratio of mobile-related tax to operators’ revenues in sub-Saharan Africa was 30%. Today the share is probably even higher. And regulators often limit competition, for instance by failing to license radio spectrum to new entrants. All this means that mobile communications are more expensive than they need be. “Price remains the major barrier to the growth of mobile entrepreneurship in Africa,” says Steve Song, a telecoms expert at the Shuttleworth Foundation, a think-tank in South Africa.
Talk of a “Development 2.0”—meaning a mobile-driven transformation of how poor countries develop—thus seems premature. But the potential of mobile services should not be underestimated. If they take off, they could transform lives and livelihoods, not just by connecting the world’s poor to the infrastructure of the digital economy, but by allowing them to become digital producers and innovators.
Fanciful? Maybe, but sceptics said the same about the potential of mobile phones in poor countries a decade ago. Just think what would be possible if smartphones and even tablet computers become as cheap and common in poor countries as mobile phones are today.

Tunisia's upheaval

No one is really in charge

The revolution is still in flux

General Ammar to the rescue?

AFTER a week of jubilation, life for many Tunisians is slowly getting back to normal. Most shops and markets have reopened. Bread and milk are back on the shelves. Schools and universities are slowly reopening. Most Tunisians seem eager to return to work and to “relaunch the country,” as they often put it. But no one knows who, in the next few weeks or so, is going to end up in charge. Some want a clean break with the past. Others prefer continuity, without the greedy excesses of Zine el-Abidine Ben Ali, Tunisia’s dictator, recently ousted after 23 years in power.
In Tunis basic services are functioning again after a week of disruption, though a curfew is still in force after 8pm. But in other parts of the country, especially the central region, the epicentre of the uprising that led to Mr Ben Ali’s fall, it will take longer for normality to return. Looters are still active and tension persists, with an uneasy stand-off between angry activists and tainted figures of authority who have been hanging grimly on.
The interim government that is meant to restore order and prepare for presidential elections within six months is fragile. Most tourist hotels are empty. Exports, especially of textile and automotive supplies, have been badly hit. If workers at factories and farms find they have lost wages because of the disruptions, then the grievances that fuelled the uprising in the first place could resurface.
Already the main trade-union federation, which has emerged as an influential political force in the absence of strong opposition parties, has called for strikes and wage increases in certain sectors. But many businessmen are afraid that the union, whose representatives quit the unity government after only a day, is exploiting the febrile situation. General strikes may be called in several cities.
A lot of Tunisians were annoyed that senior ministers from Mr Ben Ali’s Constitutional Democratic Rally (known by its French initials, RCD) still had top jobs in the new government. Most prominent were the prime minister, Mohammed Ghannouchi, who has been a cabinet minister ever since Mr Ben Ali seized power in a bloodless coup in 1987, and the ministers of finance and interior. As a result, five new ministers walked out of the unity government. The finance and interior ministers are now expected to be fired—but it is unclear whether that will satisfy those who feel the RCD should be completely removed from power. Mr Ghannouchi, a technocrat who is said to be untainted by the corruption rife among the Mr Ben Ali’s relatives, further infuriated many Tunisians by admitting that he had spoken to the former president by telephone since his flight to Saudi Arabia.
“This government is an insult to the revolution,” thunders a senior civil servant at the Central Bank of Tunisia. “It is as if we didn’t rebel. They are taking advantage of a political vacuum to consolidate their position and seize power.” A widely held view is that Mr Ghannouchi and other RCD ministers must at least have winked at the corruption surrounding Mr Ben Ali.
The central provinces of Sidi Bouzid and Kasserine witnessed some of the bloodiest clashes between civilians and the police, who are said to have used snipers to kill demonstrators. Protestors from those areas have staged a sit-in in the old casbah of Tunis, near the seat of government. They have already clashed twice with the police, who used tear-gas to control them. This prompted the army chief, General Rachid Ammar, who is credited with persuading Mr Ben Ali to flee, to parley with the protesters. “The army is the guarantor of the revolution,” he told them.
The general’s intervention has heightened his popularity and fuelled speculation that he could head a new government of technocrats. “He is the only person with the credibility among the people to carry out this transition,” says a businessman exasperated by the current government’s apparent inability to explain its aims. “We need a clean break.” But human-rights people are much warier of calls to put the general in charge, even of a civilian government. The idea reminds them of how Mr Ben Ali, who rose to power through the army and the intelligence services, was originally seen as a strongman capable of carrying out a transition to democracy.
Yet other Tunisians are happier to endorse the current government’s mission first of all to restore order as soon as possible. Some say this is a view espoused mainly by the prosperous types living in comfortable villas in Tunis’s northern suburbs. Such people fear social unrest and populist measures that could threaten their economic interests and their physical security.
But many ordinary Tunisians share the fear that, if radicals took over, the far left or Islamists could come to power. Ettajdid, a former Marxist party now run by social democrats that is represented in the new government, echoed this point in its first congress since Mr Ben Ali’s fall. “We must protect the revolution but we must also protect our gains in women’s rights and secularism,” said Ahmed Brahim, one of its new ministers, to loud applause

A parliament, but not as you know it

A far cry from real representation

Myanmar's sham legislature

IN THE sprawling new capital of Naypyidaw, Myanmar’s enormous showcase parliament building awaits its first legislators. After a general election in November, the military government hopes that the opening of the bicameral parliament on January 31st, amid suitable pomp, will appear to usher in a new democratic era. Its first job will be to form an electoral college to choose a fresh president and two vice-presidents.
Also awaiting the legislators will be the new laws and rules governing their conduct, published with rather less fanfare on January 11th and running to 17 bound volumes. These give a better guide to what might be expected of the new parliament than any pronouncements by the regime. According to those who have seen the rules, MPs may not, for example, simply ask a question. They first have to submit the question to the director-general of the lower house ten days before a parliamentary session, after which it will be vetted to ensure that it does not reveal state secrets, trouble international relations, or undermine the “interests” of the state. Should the poor, defenceless question survive that mangle, the speaker of the lower house still has the right to reject it, with no appeal.
Members themselves have been warned not to bring “cameras, radios, cassette players, computers, hand phones, and any kinds of voice-transmission or recording devices” into parliament on opening day. And no citizen should even think of turning up to sample the cut and thrust of parliamentary debate. Without the direct permission of the speaker, such an enormity would warrant at least a year in prison or a hefty fine.
Both the lower and upper houses will be dominated by the Union Solidarity and Development Party (USDP), a proxy for the military government. The USDP won an overwhelming majority of seats at the election, in part because of a boycott by the main opposition party, the National League for Democracy (NLD), led by Aung San Suu Kyi, released in November from house arrest. The NLD won the previous free election in 1990.
In both houses the USDP has nearly four-fifths of the contested seats. Meanwhile, the army has a reserved quota of a quarter of all seats in both chambers, as well as in the regional state parliaments. A military-controlled parliament therefore has the means to keep dissent to a minimum. The dictator, Than Shwe, could easily win the presidency should he want it. He may, however, prefer to stay in the background and pull strings.
Parliamentary opposition, such as it is, will come from two sources, the National Democratic Force (NDF) and the so-called ethnic parties, 17 of which won at least one seat, representing Myanmar’s diverse ethnic patchwork. The NDF is made up mostly of former members of the NLD who disagreed with Miss Suu Kyi’s call to boycott the election. They won a mere 16 seats, but have been talking a good game in the run-up to parliament’s opening. Khin Maung Shwe, a senior NDF official, argues that “although we have small numbers, we have a chance to use our voice on behalf of the people.” He says that the NDF will table three motions: an amnesty for political prisoners, a new competition law for business and a new law concerning rights to agricultural land.
Still, given the numerical and procedural odds against it, the opposition will struggle to make headway. Indeed, by taking part in a democratic charade, the NDF might merely provide a figleaf for the dictatorship. As it is, ASEAN, the ten-nation Association of South-East Asian Nations, is using the opening of parliament to argue for the lifting of longstanding Western sanctions on the grounds that the country has reformed itself. Mr Khin Maung Shwe rebuffs his party’s critics, arguing that the NDF is “neither a military puppet nor on a confrontational line”.
More might be expected of the ethnic parties, as they at least have sizeable minorities in the seven state legislatures (out of 14) to which they were elected. Nonetheless, it is certain that the central government will want to keep a tight control over these assemblies too. The state parliaments will not sit in their regional capitals, as you might imagine, but in the parliament building at Naypyidaw.
The NLD, for its part, dismisses the parliament as a sham. Win Tin, a party official who was jailed for 19 years before being released in 2008, says that “the parliament is nothing. Whether inside parliament or outside, the situation is almost the same. You have no freedom of expression.”
Instead, Mr Win Tin says, the NLD can act “as a second government”. Although the NLD is still fighting in the courts to regain its legal status as a political party, forfeited because of last year’s election boycott, it realises it needs to be more creative in its opposition. One idea is to use the internet to create a sort of “online parliament”, where issues can be debated among those in opposition, both inside and outside the country. This week Miss Suu Kyi got her first internet connection. She has also been spending a lot of time visiting welfare and other programmes run by her party to try to rebuild it from the grassroots.
Despite government hopes that parliamentary sittings will sideline Miss Suu Kyi, evidence suggests that she remains as popular in Myanmar as ever. Indeed, the real test of the regime’s claims to be heading in a new democratic direction will come not in parliament but when Ms Suu Kyi tries to travel out of Yangon, taking her message to the rest of the country. That is when the regime has clamped down hard before, forcing Miss Suu Kyi to endure years of house arrest. Will it dare to do so again?

Don't panic—yet

The government should stick to its course despite worrying economic figures

Britain's stuttering economy

CRISIS may be too strong a word for it, but Britain’s economic predicament is more than a little uncomfortable. Only a year after climbing out of recession, the economy shrank again in the final quarter of last year. The surprising weakness was caused in part by unusually cold weather but it is not fully explained by it. A frail economy ought at least to be free of price pressures but Britons have had no such luck. Inflation rose to 3.7% in December. Further increases in the cost of imported commodities and this month’s rise in value-added tax (VAT) are likely to push the rate above 4% by spring. The VAT hike was needed to help shrink a budget deficit that is on track to reach 10% of GDP this financial year. This toxic mix of falling GDP, high inflation and a big budget deficit is rare among rich countries but not unique; Greece suffers from it, too.
Such a run of bad news looks like an argument for a policy rethink. If the economy stays weak, it may not be robust enough to withstand further deficit-cutting measures, including a planned rise in national-insurance contributions this April. The persistence of high inflation (it has been well above the 2% target for most of the last three years) calls into question the idea that the Bank of England could counter the effects of fiscal tightening by easing monetary policy. Its benchmark interest rate is already as low as it can feasibly go, and a further round of “quantitative easing” would stretch too far the gap between the bank’s objective of low inflation and its actions. A concern that businesses and wage earners might think policymakers were going soft on inflation led two of the bank’s nine-strong monetary-policy committee to vote for an increase in interest rates this month (see article).
Yet nasty as these numbers are, they should not lead the government to change its policy. For all the understandable anxiety, the economy has proved stronger than seemed possible in June when George Osborne, the chancellor of the exchequer, first set out his budget plans. Much of the pressure on inflation will subside in a year’s time. The slump in output may not endure either. The cold kept customers away from hotels, restaurants, airports and leisure centres, and stopped building work. Britain’s statisticians reckon that, without the bad weather, GDP would have been flat, but that is far from certain. Business surveys suggest the economy had slowed but was still growing. It is not unusual for recoveries to stall. America’s economy slowed last year before reviving. Britain’s endured a dud quarter or two as it emerged from previous recessions.

Experience cautions against a panic reaction to one bad number. But what if it transpires that the weather was not the main culprit and the economy has lost momentum? Mr Osborne has often seemed too confident that private-sector spending will fill the gap in demand left by fiscal austerity. That he has a medium-term plan for fixing the deficit is welcome (it would be nice if America had one). Indeed, his very enthusiasm for budget cuts gives him room with bond markets to postpone some of the pain. Spending cuts tend to reduce budget deficits more effectively than tax increases, so these should not be delayed. But if more bad figures emerge a reprieve on new taxes may prove to be wise.
Deficit-financed public spending is not a growth strategy. At best, it can provide a bridge between the consumer-led growth that Britain leant on before recession to the export- and investment-driven recovery it needs now. Strong global growth, high corporate profits and a weaker currency should allow Britain to grow. If the economy cannot thrive in these circumstances, it is in real trouble.

With respect to China

America and China may both find it hard to live up to their latest promises to each other

Banyan

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WHEN the flames of ardour have burned themselves out, some squabbling couples try to rekindle the embers with a second honeymoon. Some commentators say China and America are about to embark on their third. They rank President Hu Jintao’s state visit to the United States, which ended on January 21st, alongside two previous milestones in China’s re-emergence as a global power: Deng Xiaoping’s American tour in 1979, just after the two countries normalised relations, and Jiang Zemin’s trip in 1997, formally ending the chill that followed the Beijing massacre eight years earlier and a later showdown in the Taiwan Strait. The two countries’ fervent renewal of their vows is good news. But it may not be long before the crockery is flying again.
Mr Hu has a rather dour, robotic persona—more bewildered bureaucrat than crowd-pleaser. It is hard to imagine him, like Deng, donning a cowboy hat. A visitor who announces a Chinese shopping spree worth $45 billion, however, is always welcome. But the euphoric reaction in parts of the Chinese press to his reception suggested that all it took to stem an alarming slide in China’s relations with America over the past year was to pay Mr Hu the respect—to give him the 21-gun salute, the Maine lobster and that Asian notion of “face”—which China feels he deserves.
There were no protocol gaffes such as those that marred Mr Hu’s visit in 2006, when at one point China’s national anthem was described as that of the “Republic of China”, that is, Taiwan. The only questions for the trivia-obsessed were why he pitched up at a black-tie dinner at the White House in his salaryman suit, and whether Lang Lang, a Chinese pianist who performed at the event, was being deliberately offensive by playing a tune evoking Chinese heroism in the Korean war, when its soldiers were trying to kill Americans. Mr Hu himself lacks the spontaneity to put his foot in it, though the Chinese press did its bit to make it look as if he had by censoring some bland remarks about China’s having “a lot of work to do” on human rights.
The visit was not all pomp and symbol. The joint statement it yielded skirted some thorny disputes, such as the value of China’s currency. Yet even some of its worthy but empty pieties mattered to China, which liked the repeated references to “mutual respect” in areas such as the two countries’ discussion of human rights. America liked China’s promises on intensified military contacts and on public-procurement policies. And it was pleased to evoke a rare Chinese criticism of North Korea, however mild.
If the past is any guide, however, each side will soon feel the other is flouting the statement. By “respect”, China probably means refraining from, for example, calling for the freedom of Liu Xiaobo, the jailed dissident who won last year’s Nobel peace prize, or protesting at the vindictive detention of his wife. China would also like it to mean abiding by the “Three Communiqués” (from 1972, 1978 and 1982) that are supposed to govern bilateral relations and that call for a steady reduction in American arms sales to Taiwan. But the nature of American politics, and, in the case of arming Taiwan, American law, gives American presidents little practical option but to aggravate China on these issues.
A further difficulty is the growing complexity of foreign-policymaking in China itself. One reason America is so keen on military dialogue, for example, is that the army is playing a bigger role. High-level talks were suspended for a year in protest at sales of weapons to Taiwan, but were resumed just ahead of Mr Hu’s trip when Robert Gates, the secretary of defence, was in Beijing. China’s army is planning to add impressive new capabilities—an aircraft-carrier, a “carrier-killing” anti-ship ballistic missile, and a “stealth” jet fighter—without offering much clarity about its strategic intentions. It tested the J-20 stealth plane during Mr Gates’s visit, though Mr Hu, who heads the Communist Party’s military commission, displayed (perhaps feigned) ignorance about the test. This did not build confidence of greater transparency.
Similarly, China, at America’s insistence, expressed “concern” about North Korea’s claimed programmes to enrich uranium. But the Communist Party’s North Korea policy remains based on propping up its irksome little ally. To that end it fosters Chinese investment there, which makes it even harder to act tough. And China’s promise not to “link its innovation policies to the provision of government procurement preferences”, implies ditching its “indigenous innovation” policy that discriminates against foreign firms. That will run into opposition from the interests that lobbied for the policy in the first place.
Blind faith
Even if there is good reason to expect China and America to start quarrelling again soon, they have at least tried to reassure each other over tenets of bilateral faith each has felt to be shaken. Angst as well as hope lies in the recognition in Barack Obama’s state-of-the-union address this week that America is faced with a “Sputnik moment” as China rises. Yet the joint statement reiterated America’s welcome for “a strong, prosperous and successful China that plays a greater role in world affairs”. And for all the effort China’s armed forces are devoting to limiting America’s freedom of action in the Western Pacific, China reciprocated its endorsement of “the United States as an Asia-Pacific nation that contributes to peace, stability and prosperity in the region”.
Each side is bound to doubt the other’s sincerity; the global emergence of a power as big as China was never going to be smooth. The best that can be hoped is that the inevitable tensions are contained. And with a presidential election in America next year, as well as an awkward leadership transition in the Chinese Communist Party, each side has an interest in stopping their differences from becoming irreconcilable. A third honeymoon, however, seems too much to hope for.

Protests in Egypt

The scent of jasmine spreads

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TUNISIA has a mere 10m-plus people and Egypt around 84m. But as the yearning for democracy stirs in the Arab world, a wave set off in tiny Tunisia, travelling east through the Maghreb, is now rocking giant Egypt. The past few days have seen angry demonstrations in at least a score of Egyptian towns. Some 30,000 people have jammed Cairo’s most famous square. Such astonishing events, in the heart of the Arab world’s most populous country, have not been witnessed in the 30 years since Hosni Mubarak, its ailing 82-year-old dictator, took power (see article).
First Tunisia, next Egypt? The scent of the jasmine revolution, as Tunisians are calling their national upheaval, has certainly spread. Satellite television, mobile telephones, the internet and Twitter continue to relay the giddy news across the Maghreb, along the Mediterranean’s southern coast, and on even through Saudi Arabia to the Gulf and Yemen. Plainly, the dictators are nervous. But that does not mean that they are about to fall like dominoes.
No one can be sure even how events in Tunisia will unfold. The country has a long way to go before calm can resume or a stable new order emerge. A unity government could take the country along an evolutionary path towards democracy, pluralism and tolerance. Or more radical elements, so far secular rather than Islamist, could drive it in a harsher direction, ridding it of every vestige of the old regime, including those of its number in the fragile new government (see article). Or the army might step in. The hope is that, with its educated people and its moderation, Tunisia could yet provide a hopeful beacon for Arabs looking for democracy.

But Egypt would be a far bigger prize. It is the most populous country in the Arab world, Cairo its biggest city. Egypt is a strategic pivot. America sees it as a vital ally in the war against international jihadism and in the search for peace between Arabs and Jews. Its 32-year-old peace treaty with Israel remains the main bulwark against a wider war between the Jewish state and the Arab world. Egypt’s leading Muslim institutions are generally a force for moderation.
Yet the country is also often considered a powder keg. Nearly half of its people live on less than $2 a day. Most of them are under 30. The mood is often resentful and sour. The ruling party is arrogant, nepotistic and corrupt. It allows other parties to exist only provided they do not pose a real threat. The press is afforded a measure of freedom, as a safety-valve, but is quickly choked off if it steps out of line. A general election late last year was blatantly rigged, even by the low standards of the past. Open politics is paralysed. Mr Mubarak’s son Gamal is often tipped as the old man’s successor.
The main opposition, the Muslim Brotherhood, lost all its seats in parliament in the general election. Hundreds of its members are in prison, detained under widely abused emergency laws that have been in force for more than 40 years. In the recent turmoil in the streets, the Brothers kept a noticeably low profile, perhaps waiting to see how things would unfold. If there were fair elections, they would probably do well, perhaps even win. Yet many secular-minded, democratic and liberal Egyptians feel queasy about letting the Brotherhood have its head, fearing that if it won power at the ballot box it would never let it go. Others worry that the Brothers would rescind the peace treaty with Israel. The fiercer of the Palestinian movements, Hamas, is an offshoot of the Brotherhood.
Jump before you are pushed
Mr Mubarak, like the rest of the Arab world’s autocrats, will be pondering the despot’s eternal dilemma. Is it better to loosen controls in order to satisfy their people with a whiff of freedom, or to tighten them in an effort to ensure their docility?
The fate of Tunisia’s strongman, Zine el-Abidine Ben Ali, suggests that an angry people will be satisfied with neither. If Mr Mubarak truly put his country’s interests first, he would immediately promise to retire before the next presidential election, due in September. At the very least he would ensure that the contest is a genuinely open one, not another farce.
The latest unrest may yet die down. The security services and police may manage to contain it. But it is sure to bubble up again before too long. And one day the powder keg may explode. In the long run, the real question for Mr Mubarak is whether he wants to leave his country with a chance of peaceful change, or to leave it ablaze.