SUBJECT: SOVIET STATEMENT AT F.E.C. CONCERNING JAPANESE INDUSTRY

Attached is an analysis [1] 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. [2]

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.