Putin Abolishes Russian Space Agency (!), to be Replaced With State Corporation

With the flourish of a pen earlier today, Russian president Vladimir Putin officially put an end to Roscosmos, the country's federal space agency. That decree capped off over a year's worth of organizational despair as the agency saw its ten-year budget cut (again), the loss of a handful of spacecraft and the misuse of over 92 billion rubles (or $1.8 billion) in part thanks to a pervasive culture of corruption. Don't worry about the country's spacebound ambitions, though — Roscosmos will be reborn as a state-run corporation on January 1.

So, what does that actually mean? Well, we're not really sure yet.

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Russian Army Ground Forces Reform

The military is undergoing a process of equipment modernisation and tactical innovation. These changes will not solve all its problems, particularly regarding manpower, but will make it a much more effective fighting force in the next 5-10 years. As the Ukraine crisis has shown, the Russian military has improved significantly from the Russo-Georgian war of 2008, and is significantly stronger than its Ukrainian counterpart.

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A Look at the Russian Reform of the Russian Air Forces into the Russian Aerospace Forces

At some point, probably next summer, the Air Forces (VVS) will cease being one of Russia’s three armed services. The Aerospace Forces (VKS or ВКС) will take their place. The Aerospace Defense Troops (VVKO) will likewise disappear as a branch and get rolled into the new VKS. Russia will be left with three services and two branches (not three of each).

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War is Boring's take is Russia is recreating the US Air Force.

Is India's Prime Minister a Modernizer, not a Liberal Reformer?

THOSE who hoped that Narendra Modi would prove a busy liberal reformer as prime minister have so far been disappointed. But that, says Gurcharan Das, a writer and former businessman who now advises the government, is to judge the man by the wrong measure. Rather than being mad about markets, he says, Mr Modi is a strong-willed moderniser, a man who thinks a capable bureaucracy can fix much of what ails India. It is the lesson of Mr Modi’s running of Gujarat, where he relied heavily on his civil service and got public-sector firms to flourish.

But the bureaucracy is very far from capable. Lant Pritchett of Harvard University has described India as a “flailing state” thanks to its rotten administration. Bureaucrats are incompetent and corrupt when they are not simply absent. India struggles to implement even well-found policy. India’s head, in Mr Pritchett’s metaphor, is not reliably connected to its limbs.

Mr Modi appears bent on changing that. In office for only five months, he spends a lot of time with civil servants, preferring to meet them instead of ministers. He and they have been looking for fixes, such as shifting the paperwork needed to open a business onto the internet, or freeing firms from petty inspections. Meetings are said to have a corporate air, with Mr Modi as chief executive. Dates for specific targets—the “deliverables” of corporate jargon—are set. Resistant bureaucrats are transferred. On October 16th Mr Modi announced a big reshuffle, with a liberal reformer from Rajasthan becoming the finance ministry’s top bureaucrat.

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Fixing China's State Capitalism

JIN JIANG is one of the world’s biggest hotel groups, managing five-star properties across China, a budget motel chain and a travel agency. It is also a state-owned enterprise (SOE), controlled by the Shanghai government. It has seen better days. The company’s best hotels played host to hundreds of foreign leaders in the past century, including Richard Nixon in 1972, when America and China began their historic rapprochement. But in recent years visiting dignitaries have opted for newer hotels over Jin Jiang’s musty rooms and tired furnishings.

When people think of Chinese state companies, they often have its giant banks or oil companies in mind. But most of the 155,000 enterprises still owned by the central and local governments are more akin to Jin Jiang: they are businesses that have little to do with the country’s economic or political priorities, and they have had a run of bad years, losing ground to private-sector rivals. That may be about to change. China is in the midst of the biggest attempt in more than a decade to fix the country’s brand of state capitalism, attempting to breathe new life into Jin Jiang and dozens, if not hundreds or even thousands, more like it.

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Russia's United Aircraft Company Reforming Tupolev

Russia's Tupolev design bureau (OAO Tupolev) has affirmed its agreement to merge with the Kazan-based KAPO Gorbunov aircraft factory, parent holding United Aircraft Corporation (UAC) announced following an extraordinary general meeting on 24 March.

KAPO Gorbunov has been associated with Tupolev for decades and has produced the designer's Tu-22M3, Tu-95 and Tu-160 bombers. It has also been slated to produce the next-generation Russian bomber, the Tupolev designed PAK-DA, and manufactures aerostructure components in association with Aviastar-SP for the Ilyushin Il-76MD-90A.

The merger will also include an additional share issue by Tupolev of 15 billion shares with a nominal value of one ruble each, to be converted for shares in KAPO Gorbunov at a coefficient of 0.005455 for each Tupolev share.

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China to let Market set Interest Rates Within 2 Years?

China is likely to ease controls on interest rates paid on bank savings within two years and will allow wider use of its tightly controlled currency for trade and investment, the central bank governor said Tuesday.

Zhou Xiaochuan's comments follow pledges by Chinese leaders to make the country's slowing economy more productive by giving market forces a "decisive role" in allocating credit and other resources.

Allowing banks to compete for deposits by paying higher rates on savings would put more money in the pockets of Chinese families, helping to achieve official goals of boosting consumer spending and reducing reliance on trade and investment.

"Liberalization of deposit rates, this should be the last step in interest rate marketization," said Zhou at a news conference. "I personally believe it is very possible to realize this within one to two years."

Beijing announced its first major reform of interest rates in July, scrapping controls on lending rates. That will allow borrowers with better credit records to negotiate lower rates with banks, reducing costs for healthy businesses and spurring economic growth.

The central banker did not directly answer a question about why Beijing has guided the exchange rate of its yuan lower against in the dollar in recent weeks. But he pointed to the trade balance, which swung to a deficit in February, and said short-term changes in financial markets are normal, while the central bank looks at the longer term.

"We respect market forces," Zhou said.

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China Continues to Reform Military

PRC leaders have outlined requirements to restructure the People’s Liberation Army (PLA) and national defense to better accord with China’s new economic situation, new military missions, and trends in modern warfare. The announcement coincides with other signs that the Xi administration is pursuing a centralization of power to enact a major restructuring of the economy, government administration, and military. Limits to the traditional methods of implementing major policy change and the severity of restructuring required likely underpin the turn to a more centralized approach to reform. The biggest obstacles will likely come from the resistance of powerful interests which stand to lose from Xi’s efforts to centralize power, a possibility which will be challenging for the PLA to avoid.

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Is Xi's Vision for China Embodied in the "New Left?"

Chinese President Xi Jinping honored the 120th anniversary of Mao Zedong’s birth on December 26, using the occasion to speak at length about the significance of the founder of the People’s Republic in Chinese and Party history (Xinhua, December 26). The speech was generally laudatory but made brief references to his “mistakes”: launching the Cultural Revolution and, in a possible reference to the Great Leap Forward, “simply copying Leninist theory and imitating the experience of Russia’s October Revolution, causing grave harm to the Chinese Revolution.” However, Xi quoted Deng Xiaoping’s verdict on the legacy of Mao to argue that his failures came second to his achievements: uniting the Chinese nation and achieving its independence, solving “difficult problems about the relationship of the Party and the people,” and establishing the “basic socialist system.”

The speech is Xi’s most detailed effort yet to explain the legacy of Mao, and it demonstrates two important aspects of his vision for China: first, that his alternating evocations of Mao and Deng do not represent vacillation, but an effort to reconcile the “two undeniables” of Chinese politics. As Xi put it in the speech, deploying a slogan: “Without Reform and Opening, there could be no China today; if we abandon this path, China can have no tomorrow” (for more on the speech, see “Xi invokes Mao’s image to boost his own authority” in this issue of China Brief).

Second, the speech—and, even more, its explication in the Party’s ideological journals—suggest strongly that Xi’s vision of China’s future has been shaped by the group of academics known as the “New Left.” The group is associated with nostalgia for Mao and especially with Bo Xilai’s experiments in Chongqing—making the resurgence of the Ne Left’s ideas after Bo’s downfall all the more interesting. In attempting to understand his plans for China’s future, his borrowings from Mao should be read not as ersatz efforts to justify policy, but as belonging to an established discussion about the future of China’s social and political systems.

The New Left—a controversial name rejected by many of the academics to whom it is applied—emerged in the 1990s as a criticism of unfettered capitalism, and emerged as a major player in the Hu Jintao-era debates about the idea of a “China model.” Essays such as Wang Hui’s (Tsinghua) “Contemporary Chinese Thought and the Question of Modernity” expressed reservations about the dislocations of rapid economic change, while Pan Wei’s (Peking University) “Toward a Consultative Rule of Law Regime in China” examined Hong Kong and Shanghai to envision a future without Western-style democracy (Tianya, Issue 5, 1997; Journal of Contemporary China, Volume 12, Issue 34, 2003).

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Economist on China's Reforms: Its Xi's Mandate

NOT since Mao Zedong came to power in 1949 has a Chinese leader been so quick to unveil such a wide-ranging blueprint for change. Even Deng Xiaoping, after taking over in 1978, was slow to reveal his hand. President Xi Jinping, in a 22,000-character document released on November 15th, has pledged sweeping reforms. These range from a relaxation of the country’s strict one-child policy and the abolition of labour camps to the scrapping of controls over interest rates. But rarely has a leader faced such a challenge to his plans.

Despite having overtaken Japan in 2010 to become the world’s second-largest economy, China still struggles to understand the world’s interest in its policy pronouncements. The Communist Party announced it had approved the document on November 12th after a closed-door meeting of its 370-strong Central Committee. But it had hoped, as usual, to keep its contents secret for a week while it briefed its own members. In the end it relented after three days; pressed, it appeared, by speculation (even in Chinese newspapers) that the meeting had failed to live up to its billing as a turning-point for reform. The party even took the unusual step of publishing a speech by Mr Xi in which he revealed he had personally led the document’s 60-member drafting team. State media said he was the first party chief since 2000 to take on such a role. In effect, they were saying, this was Mr Xi’s manifesto.

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Did the Chinese Just Concentrate More Power in Their Chief Executive?

While the recent Third Plenary Session of the 18th Chinese Communist Party (CCP) Central Committee was expected to unveil major initiatives in economic liberalization, what has struck Chinese and foreign observers most is the weight that the leadership has given to enhancing state security, particularly centralizing powers in the top echelon of the party-state apparatus. the CCP’s monopoly on power. The plenum set up a National Security Committee (NSC) to better coordinate the work of departments handling functions that range from police and counter-espionage to the media and foreign affairs. Given that apart from the NSC, President Xi will most likely also head a newly established Leading Group on the Comprehensive Deepening of Reform, the already formidable powers of the party General Secretary and Command-in-Chief will be augmented further.

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Is China Forming a National Security Council (guojia anquan weiyuanhui)?

The leaders of the Chinese Communist Party have resolved to establish a national security council (guojia anquan weiyuanhui) in order to “perfect the national security system and strategy, and guarantee national security” (Xinhua, November 12). The call, buried in the final communiqué of the Third Plenum of the Central Committee, appears from context to be focused on addressing domestic threats to the Party, but both the choice of name—the same as the Chinese translation of the names of the U.S. and Russian National Security Councils­­ (NSC)—and the leadership’s recent decision to apply the concept of “top-level design” to foreign affairs suggest that this body may come to function as a Chinese equivalent of its international counterparts, as a venue for inter-agency coordination on security issues.

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China to Release Decadal Reform Plan Tomorrow

China's leaders will unveil a reform agenda for the next decade on Tuesday, seeking to balance the need to overhaul the world's second-largest economy as it loses steam with preserving stability and to reinforce the Communist Party's power.

The blueprint, which past experience suggests will be first published by the official news agency Xinhua, will show just how committed the new leadership is to reform after formally taking power in March.

Economic reforms were expected to dominate four days of closed-door talks that began on Saturday and involved the 205-member Central Committee of China's ruling Communist Party. The conclave was held under tight security at a Soviet-era hotel in western Beijing.

Some social and political issues could have been tackled, but Western-style political reform were probably not on the agenda, analysts said.

President Xi Jinping and Premier Li Keqiang must unleash new growth drivers as the economy, after three decades of breakneck expansion, begins to sputter, burdened by industrial overcapacity, piles of debt and eroding competitiveness.

Yu Zhengsheng, the fourth-ranked member of the ruling elite, said last month the meeting would deliver "unprecedented" reforms. However, several analysts and official media have sought to tone down expectations.

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How Big a Reform is Coming to China's Economy?

RUNNING the world’s biggest country requires sacrifice. For the Communist Party’s top 376 officials on its central committee, the sacrifice includes the occasional weekend. From Saturday November 9th until the following Tuesday, they will gather in Beijing for the third time since Xi Jinping became head of the party nearly a year ago. The “third plenum”, as this meeting will be called, is the new leadership’s chance to lay out its stall on economic reform. In the past similar gatherings have shaken the world. The third plenum in 1978, for example, sealed Deng Xiaoping’s authority over the party, allowing his vision of “reform and opening up” to prevail. Another third plenum, in 1993, set the stage for a ruthless shake-out of loss-making state-owned enterprises (SOEs).

If the past provides the inspiration for ambitious reform, the present furnishes the compelling need for it. In recent years China’s growth has slowed significantly to under 8%—and were it not for a timely fiscal stimulus would be slower still. Some of the slowdown is inevitable, the consequence of a diminishing technological gap with the rest of the world and a declining working-age population. But two other macroeconomic trends are causing concern. The investment spending sustaining China’s growth appears to be yielding sharply lower returns. At the same time, credit is growing faster than GDP (see chart 1). It suggests that people are borrowing to buy assets, particularly land and property. The more these assets appreciate, the more people borrow.

Will Mr Xi rise to the occasion?

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Ostapenko Appointed to Take Over Roscosmos

Deputy Defense Minister Oleg Ostapenko has replaced Vladimir Popovkin as the head of the Russian space agency, Roscosmos, as part of a major overhaul of the nation’s space industry. He will head up a beefed up space agency that will oversee an industry that will be consolidated under a single commercial company.

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