The Battle of Kursk was a stunning German victory, turning back the Red Army's offensive and breathing new life into the Wehrmacht's eastern operations. The disaster spurred the Soviets on to focusing more of their efforts on Europe, ignoring pleas by the British and Americans to do something about Japan. Ultimately, the victory at Kursk was not enough to save the Germans from the Allies, as the British and Americans bombed German industry to oblivion and the Red Army crushed what remained of the Wehrmacht over a series of offensives that ended the European war in July of 1945.
The war in Asia continued, and while the West begged Stalin to intervene, the Red Army was exhausted and was occupying half of the European continent, and Stalin distrusted the increasingly hard to control Communist Party of China. Instead, Stalin placed his hopes on the Nationalist Chinese to act as anti-Western proxies in Asia. Mao would die of frostbite before the end of the war, which ended with the atomic bombing of Kyoto on August of 1945. The Soviets did invade Japanese-held Korea right before the Japanese surrender, which gave them the northern portion of the Korean peninsula, at least for a while.
As soon as the Axis were defeated, the West and the Soviets turned against one another. Both the Soviets and Americans courted the Nationalist regime in China, while the Chinese were more than happy to allow the flow of capital from both camps to continue. The North Koreans began a war against the wishes of Moscow in an attempt to unify Korea under their rule, resulting in their destruction. The world fractured into the American and Soviet blocs, until the 1970s, when China began its own rise and became a third superpower. Proxy wars will be fought all over the world in lieu of conventional conflict, as all three sides fear the threat of nuclear annihilation.
The world is divided into three camps. The First World is the American sphere, generally defined by its dedication to capitalist, democratic values. However, in practice the Americans are willing to support any regime that opposes Moscow and Nanking. Though America and its NATO allies, such as the UK and France, are full democracies, regimes such as Mexico, Colombia, Saudi Arabia and Iran are very much autocracies of one form or another. The First World is seen by its opponents as pie-in-the-sky idealists and hypocrites who speak of lofty ideals but do nothing to live up to them.
The Second World is the Soviet sphere, the communist world and its allies. The Second World is far more lopsided than the First with regard to power, with the Soviet Union as the unquestioned leader of the alliance. The Warsaw Pact remains under Soviet military occupation, and any popular resistance is met with armored assault, as the Czechs and Romanians found out in 1957 and 1971, respectively. With the thawing of relations in the 1980s, the Soviets gradually opened their borders up to Western influence and experimented with market economics. Now, it is very possible to get a Big Mac in Moscow.
The only somewhat independent allies of the Soviets are the United Arab Republic and the Latin Peoples' Union. The United Arab Republic is under the rule of the Ba'ath Party, which has socialist elements but is primarily an Arab nationalist party that is very much opposed to Islamic fundamentalism. The Latin Peoples' Union, founded by the infamous Che Guevara, has rejected the Soviet model for a more agricultural communism, which ended in disaster as the various Five-Year Plans all failed to meet their goals. The Latin Peoples' Union still maintains a command economy, which is unique among the modern Soviet bloc.
The Third World was once a term for those countries not in the American or Soviet blocs, but now refers to China's sphere of influence. The Third World is not united economically, with Brazil being very capitalistic and India being more socialistic than the Soviet Union, but they are united in the idea of being independent from either Western or Soviet influence. Nationalist politics dominate the Third World, although of course the Chinese encourage trade between Third World nations and themselves. China remains under the autocratic rule of the Nationalist Party, which has put down democratic protests with rather appalling violence.
However, China is opening itself up to the international market and is becoming the workshop of the world. China itself is now a very rich country after its economic miracle starting in the 1970s, and its ascent has worried both Washington and Moscow ever since. However, its allies remain very poor, which has only made Chinese power in the Third World that much more effective. With the Third World quickly eclipsing the Second, analysts all over the world are worried about a major shift in the balance of power that could cause catastrophe down the line.