SUBJECT: SOVIET STATEMENT AT F.E.C. CONCERNING JAPANESE INDUSTRY
Attached is an analysis  prepared by Mr. Bullock of the statement made at the Far Eastern Commission on 23rd September by the Soviet Ambassador, Alexander S. Panyushkin, in which he proposed that there should be no limitations on the development of Japan's peaceful industry and that a control authority should be established for a period of several years to prevent the revival and creation of Japanese war industry. 
One fact which emerges from this statement is that the U.S.S.R.
apparently does not see any threat to its security from a high level of industrial development in Japan and in fact desires to encourage it provided they have the opportunity to share in its direction and control. The views of the U.S. and the U.S.S.R. on Japanese industry have in fact converged, though their approach to the problem is from entirely different premises.
It is difficult to determine the calculations which may have entered into a Soviet decision that an economically strong Japan would best suit their own long term interests. But the following possible calculations may be briefly mentioned- a. Japan has never had a democracy. It has only had a political system. The influence of the occupation is merely a frosting which will evaporate when the Americans withdraw leaving the Japanese population as susceptible as ever to domination by a totalitarian system.
b. The very nature of the Japanese economy, requires access to the raw materials of Manchuria, Korea and North China. On a Soviet assumption that these areas will be under the control of the U.S.S.R. once this inevitable pattern of economic relations has been re-established it would be possible for the Soviet merely to reverse the historical direction of the domination and a highly industrialised Japan will fall within the Soviet orbit.
The Soviet statement would appear to reflect considerable confidence in their own long term programme in Asia and in the outcome of an economic struggle in which they are prepared to pit natural economic and historical factors against United States efforts to establish artificial economic relationships at great cost and burden to themselves.