OFFICE OF REPORTS AND ESTIMATES, CIA FAR EAST/PACIFIC BRANCH INTELLIGENCE HIGHLIGHTS -- WEEK OF 6 JANUARY - 12 JANUARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-01617A004600010007-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 27, 2016
• Document Release Date: May 15, 2013
• Sequence Number: 7
• Publication Date: January 13, 1948
• Content Type: REPORT

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REFERENCE NER L1IRAY
OF ICF. OF Iii i'ORTS AID 'S'1'1!!1AT" b, UlA
FAR -.AS / ACI]'IC flI At CII
IIITCLLIG 7:w 1IIGF1LIGIIriS : L~1C OP 6 JM UA^.Y - 12 JA"IUAnY
13 January 1948
GL:ERAL
China exhibits active interest in Korea.
-M+ina s aotiv interes n korea evidenced by the report that
prior to the arrival of the U11 Temporary Ca-zminsion in Seoul on 8 January,
Liu Yu-can, Chinese Consul General in Sootk]. with the rank of :linjstar and
China's deligato, contacted various Korean leaders including Moderate Dr,,
Kim Kiu Sik and Extreme Rightist Rhee Syngm n. L.iu also held a press
conference in which he stated that if the Soviets refused to admit the
1JIT Commission to North Korea, tho Cormission? would refer tho problem -to
the Little Assembly for the next diploratio moved
Australia's aetivrit{es in tr^s tT Good Offices Corr-ittee.
Aus slick has Seen criticised or ?. 2 rounds that her aet3irities in
the U'1 Good O'ficeo Committee have embarrassed the Dutch, have been exceed'
ively pro-Indanesian. and have not contributed t the .pork of the Connittee.
The US membor of the GOC, howrevor, has reported that any Australian partiality
for the Indonesians is more than matched by the 1?elgian partiality for. the
Dutch; and that Australia has exhibited a high degree of cooperation, fairness
and constructive e?fort0
Plans to withdraw Australian Troops from Japan abandoned.
Vinister for the Army Chambers announced on 8 January that the Australian
,overnrrnt has abandoned all plans for withdrawing forces from the British
Commonwealth Occupation Forces in Japan because of the expected delay in
concluding the Japaeso peace tareaty. The rrithdrarra.l of British troops ray
necessitate alterations in the strength and disposition of the Australian
troops in Japan. These alterations will be discussed with Lt, General Roberts;
commander of BCOF, on his forthcoming visit to Australia schedulod for the
middle of January0
Document Nod
001
NO CHANGE in Class. 13 fiN
DECLASSIFIED
El"k
Class. CHANGED TO: TS S
DDA. l emo , 4 Apr 77
Auth: DDA REG. 77/X763
Date: 2 1 FEB 197 lays o
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SECRET
.
Present status of Japanese repatriation. As of early December there
remain. to be repatriated '1'13.9560 Japanese nationals out of an original
overseas strength of 6,607,158. Frog F:'.anchuria and Soviet-controlled areas
767,113 have yet to be repatriated of which total there are 3,000 in Pairen;
201,968 in Karafuto and the Kuriles; 65,290 in Manchuria and 496,349 in
Siberia. Repatriation from S~.beria has been drastically reduced for the winter
months due to ice clogged harbors.
Repatriates from Soviet-controlled centers continue to profess a violent
abhorrence of things Communistic due to their treatment at USSR hands. Soviet
propaganda with prospective repatriates appears to have been increased and as
an integral part of that propaganda their physical living conditions have been
improved. On the surface, however, it appears That there continue to be few
Japanese arrivinlc~ frO,m Soviet territories who have become enthusiastic converts
of Comminisn.
Sabotage of the _Japanese econo.-q? At the end of the Year 19L 7, the
Japanese econorly was still in a critical state. Despite 'many factors favorable
to recovery, the industrial establ-isihnent was still no :::ore than just over 40
percent of the 1930-1934 level (the level selected by the FEC as basis for the
standard of living of peacetime Japan); )inflation was serious, and black markets
rampant. :responsible leaders decried the economic crisis, but seemed powerless
to improve the standard of living or to sti riulaba business leaders to greater
efforts.
The economic difficulties in Japan have resulted in several co::enentators
raising the specter of internal sabotage. This sabotage is said to have in
mind the reduction of reparations and a more liberal peace treaty. If such be
the plan, there is evidence of some degree of success. The Pauletr Report,
,ohich was. the first comprehensive survey of Japanese economy for the purpose
of determining, what 'reparations should and could be taken, has long been on
the ash-heap. '.'here are indications that even the much more liberal Strike
Report which was made subsequent to the 11auloy Report is to be superseded by
recommend ations of easier terms. In addition, two years after the surrender,
the US is still being called upon for sizeable shipments of essential inports,
particularly of food.
However, it seems doubtful that a concertei effort by the Japanese leaders
to sabotage their own improvement could escape the attention of the supervisory
authorities. SOAP, well aware of the slow pace of Japanese recovery and of the
forces tending to retard it. brought to the attention of the Japanese Govern-
ment the. critical condition of that country's economy in the early part of l9I7.
This action was accompanied by the "suggestion" that drastic steps be taken to
ef'f'ect an improvement.
Critics of the extent of Japanese recovery may be overlooking the j roble'ns
which are inherent in the post-war situation, and which cannot be ,m rieJ ately
solved. The entire Japanese eeonc ry is being reorganized. Land reform is be-
ing effected; the industrial structure is being overhauled and reorganized.
Japanese recovery is dependent upon the renewal of its overseas trade, and
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time must elapse, before financia] arrange-.ants can be effectt:d to enable
Japan to procure raw materials whf ci. it needs for its production of exports.
The truth probably lies sa-ie-rtrere between the extremes of concerted
sabotage and every effort toward recovery. Tito Jepaneso are undoubtedly
atte: tcttng to keep at a rti ni inum removals for reparations and to arouse world
empathy so as to secure a soft peace. however, in general, they are working
toward the difficult goal of establishment of the Japanese economy or, a sound
basis.
Tax collections lag in iiapari. Tax collections in -Japan have fallen far
behind the scheduled a-~ount. back taxes fcr the current fiscal. pen od1 are
reported to aggregate about 100 bit: ion yen. Because of this l.a-, the Finance
.inistry has alrea;O,, issued bonds amourtinp up to 32 billion yen. . oreover,
note issue has a.7 read;; reached the urprc celen tcd _i - it re of aI? roximately 230
billion yep.
The failure of -the Jaiparese Coverr:^_er_t to collect such large amount of
sci.aduled taxes is f,)-rther aggravating `,:,e ir._"l:tior.. T:~e del ci.tfnarcing
Which is being carried out has already served as a st? nulus to serious inflation.
-,-
The Government has atte-ipted to balance the bur:-trot, but tr-e failure to collect
anticipated tax revenues necessarily i-:poses additional inflationary pressure.
The most logical explanation of the unusually large lag in the collection
of taxes seems to be that the Japanese people have not yet beco.:!e adjusted to
a new for-in of collection. Ho-c ever, the arrears may also be due in part to
over-estimates or to hostility to pay ent to noet a budget, one-third of which
consists of occupation expenses.
is a definite lack of public cony r ence in the new currency. Black market
prices ap:.ear to have soared. f-hile holders of ration. cards flay purchase
goods, when available, in the government-controlled stores at the arro?:nced
low levels, persons not holairrt ration cards face real hardship. The present
black c:arket i rice of rice is fror'. 500 to 750 yen per unit as compared to the
pre-conversion ,.rice of 300 to 50X) yen and the present n rice in t overn'ient-
controlled stores of 30 en. In addition, the V) .a is spending the rieu currency
freel;,y. ibis factor and thb uncertainty as to the future value of the new
currency are reflected in the increased black nmae-cot prices.-
Lack of Public corfiderce it, new north Korean currerc z. Although it is
not possible at this time to judge the success of the recent curren con-
version in north Yorea there 50X1
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GHIIIA
Internal Vfairs
Additional information on the faon.ution of a. "Kutx:dntwng Democratic
Croup" in Hongkong nos indicates that the announced ; ro 'um of thin group
incluues a) achieverlent of naro amicable relations with the b) unifi-
cztion of derocratic p.rties, including the Chinese C nists and the L'emo-
cratic League; c) land reform. Femg Yu-hsia ;, rr"rlord recently expelled
from the Kuomintang, and Tsai Ting-lcsi, leader of a group of southern dissi-
dents, are now reported to be Lembers of the group. !`ilitury support reziins
uri norim; it is probably very lioited.
Hongkong ra s also the scene of the opening of the third plenary
session of the L'eriocratic league. ..lthough the LeuLme is banned in China
proper, a League leadeir in Hongkong stated that he could not accept "dissolu-
tion rriae by force". Calling the Nationalist leaders tools of US reaction-
aries, this leder stated that the W-Lue will fight to destroy the Thanking
regina. In E;eneral, the Democratic League group in Hongkong is thought to be
further to the left than the father or,.inization, now suppressed., in China
die' ?
The I tional Government $ e planned political. and military reorgani-
sation in Forth China is going badly. The Hopei i rovineial Government is
still in a disoryanincd st..te, , it,.h Fu Tso-yi, tt tion:.list nilitury leader
in that province, having assumed obligations i:hich are beyond his poker to
diacharLu. f3either LI. Tsung-jen nor local troops, cony nders are expected to
give Fu the .ihole-her rtes cooperation r.'hich would be one prerequisite to the
success of his pro ranl. Funs auttwrity, already seriously limited by Cc, nist
control of largo areas around him, is further conditioned by the fact that
his troops will have to be al..re ad very -thin through five northern provinces.
In addition, his position is complicate d by the demands of the military situ-
ation in L''unchuria, where the Government is still endeavoring to prop up. its
tottering structure by the dispatch of reinforcements that my rake further
incursions into Fuss military strength,
External Affairs
Fei,p ''s Legation ,marten vas formally returned to Chim on 26
December with the signing of the necessary documents by consular officials
of the US, the UK, France, Belgium and the fetherlands.
The departure of the Chinese Technical :.fission to ::ashington to
aid in the drafting of a program of US aid has been set for 14 January. It
is headed by I?ei Tsu-yi, former Governor of the Central Bank of Chains. Yu
Ta-Mei, 11:3nister of Communications, previously mentioned in connection with
the Litasion, is not coming.
The Soviet Military Attache in flanking, General Roschin, left for
l .oseowr on 8 January, in response to a sudden sum;nons. General Chang Chi-chung
3.Q. .T
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Sint: -T
hue revealed to US Ambassador Stu:+rt the substance of a conver&.tion with
RosChin just prior to the litter's dej. rture. The Soviet L_ilitary :Zttache
stated, according, to Ch.ng,that the USSR desired the Chhineso civil cau- to
end and peace restored in China under Chiang nixed as the only leader capable of accornplishingsthis,tlhom the USSt recog..
China and Ilong Kong have, reached an anti-smwgling accord which
provides that Chinese products arriving; in Hong Kong twist have
ance faith Chinese customs and that remittances to H prior clear.
one i:oi]g be limited.
The Soviet Consul Gener.1 in Shay, ,:i, thro
required all Yugoslavs to register at the Soviet ConsulatepGeneralobettwreenion,
15 and 20 Lecember last.
There has been an increase in Soviet hostility and security pre-
cautions tot*srd US official personnel in China, t:ith the evident intent of
closing off sources of inforr~ation within the Soviet community in China.
Economic
Current Prices. The inflationary upspiral was resumed dun
creek by the price o rice: this cc ms ty reached a ne.; the
high of hanghai CI1 s re-,ppp
Per. Pima in Shanghai. The. US dollar blaelaaArket rate in S
ported over Cie X200,000 on 8 January, but recovered to 192,000 on the next
day. This is still a substantial jump from the 152,000 level re g
the end of the previous week and over C
at
194?. The "o en" ~; higher than the rate of 2 Deer
p,. (Official, foreign exchange) rate has remained CrI
DeceL ber. V_oney appears to be plentiful in spite of the governme~I8w since
30 tight money 1?olicy and police controls. CU note issue is now reported at
300 billion a day. Unec=rtrinties over currency reforms and
confidence in uarket,improvenents continue to affect the senu,;eneral lack itive Shanghai
scene,
Foreign Trade. Shanghai trade sources rej ort that recom endationa
are being redo to the i. ecutive Yuan to Modify the {.resent foreign exchange
regulations a1b:lica'ule to merchandise purchased abroad with free excl .:nges
imPorted into China in the rat; state aria processed for re-export,
suggested plan exporters t:ould be required to sell to the go ntnonl the
that portion. of the foreign exchange as represented tic labor anti za terials in the finished the value of the domes-
Finance Linister G.K. Yui announced that the average monthly foreign
trade deficit during 1947 tus over US y2D million.
Sa China and Bone; Kong have reached an anti-s
agreeM8nt. Chinese products arriving at Hong iC - r crl
o be
by the Chinese Customs, and remittances from China to Hong nF, act Ko g to be
limited. are
et. G.K. Yui reports that 1947 expenditures t;ere C11 $40
trillion, four and half tines the budg,et, :while revenue was only twice that
of the {amount budgeted, or CN -:1,3 trillion.
-?,. .
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I - & Q'.1 T 11
Coal Shortage. Shanghai coal ohortw e is bordering on an erver-
gc:ncy. Repeated disruptions in shipments of Kailan coal to Cltin x n!;tao
have cut deliveries to 7,000 tons for the month ending 7 January, as com--
parod with alproxir:>utoly 150,000 tons in previous iaonths. Although Stock
piles are accwmi ating at the Kai.lan ar Huainan runes owing to lack of
transport.:t:i_on facilities, the resurvc:s in Saw iai are usticiitcd rouves the U:~:: ? supplied, Chinese-controlled, Fisheries Rehabilitation Admini-
stration to sup lj u;; to 500,000 catties (550,000 ibs) of fish to the Shanghai
market a month; catches in excess of this quota will be purchased by the
L inictry of Agriculture and the Central Trust for re-ship rent to other cities.
U!`:r1 A considers the Yuan ruling, as an nsatiufaetory Co roiaisc since the,
competition by r; A catches viill thus be limited to roughly b,; of the average
ant 1 y capacity of the L. rket. This freedom from F.Ul eot:petition trill
assure, at leas;, ter:porariiy, a ruudlei:ran monopoly over the retail price of
fresh fish by the ;.all organized private f ishinl; interests. has en-
dc;avored to increase the sup.f.ly of fish and lo-..-or prices to the consumer.
L:ilitary
The Catraunists are not, contrary to reports in the Chinese press,
.rithdrardmg northnrard from the ;:widen area, but are not; attacking in force
at Chineho;?, and in the area east of Hsinm.in. The nationalist i.anchurian
command admits the loss of the effective fighting strength of one arrrj and
that their losses for the past creek totalled about 12,000 men. As a result
of these losses the Rationalists are not iz3_ediatcly capable of carrying
out any extensive operations.
In IIorth China, Corraunist harrasment continues to i revent I"u Tso-.yi
from dispatching reinforcements from his ca nd to i?inchuria. '..bile Coricninist
units move southward from the Shanturil; i eninsulu across the Chi;..otsi rail-
road, Chen Yi broke off his attack In the i:aifeng area and now continues to
elude Nationalist efforts to trop him.
Rur=ors continue to state that Cher, Chenc;, due to a stor."ch illness
(variously reported as duodenal ulcers, perforated ulcers, and a knife .;curd),
will be forced to give up his joint position as Chief of Staff a,:a head of
the Fresident's i!ortheast Heads:uarters, ;,ccorcing to Stuart, Chiang Kai-
shek has alreauy asked Chang Chih-chum; to Lake over the Chief of Staff office.
3i.CR:;T
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' a .. SECi{1
Roxas seeks actual char ee of aft and ocrru tion, in a luncheon
speeo on anuaryD President :cocas appee.s a ca net members and key
officials to purge the r,overrz nont of graft ind corruption and stated
that no person should continue in goverranegnt service unless "he can honor
the poet he holds." Roxas urged the profs, which has become increasingly
critical regarding ~ corruption, to bring o.etus.l charges rather than to
print rumors of graft. He explained pointedly that current criticism has
made foreign capital wary of investment in the Philipplime.
Dissident leader refuses to surrender. Lui.s Tame, fugitive
Congress- agrarian dicsidentc knovan as
Hukbalshaps, has announced from his W3-_-c% the peasant "army" will
not surrender to the Philip;:; Coverer - t"i bringin the agrarian problem
into sharp focus on the eve of the ref ul .? cazzlon of the Philippine Congress.
After almost a year of silence, 11aruo told a I.:anila nevmpaperman, according
to an AP account: "The trouble wi%h the Gotcr- nt'e Huk policy is that it
is the wrong medicine for a chronic ailwcnt. The patient 'will never got well.
The Goverment is not dealing with a oriiAral problem but a social one,"
Accusing the Roxas, administration of "aotin, ; very rluch like a puppet of United
States imperialism," Taruc declared that Philippine: interest should be safe.
guarded., Be denounced Coverrnt corruption and election "frauds" as further
"stumbling blocks to peace", The peasant leader concluded by vmlooming
mediation from unprejudiced, nymp athetio non among whom he mentioned former
Senator Gulogio Rodriguez, Hacionalista Party leader, and Judge Jesus. Barrera,
head of the Democratic Alliance.,
Taruc's refusal to surrender follored closely two current attempts by
government officials to treat agrarian unrest as a criminal problem: (1) the
recent attempt by Senate President Avelino to effect Taruo's surrender by
guarantying his personal safety and to persuade the dissident agrarian eaements
to abandon their arms and surrender in return for a promise of general armestyy
(2) the announcement by Secretdry of Interior Zulueta, civilian head of the
Constabulary, of a renewed drive to confiscate an estimated 200,000 unlicensed
firearms.
Terming Tdruocs demands "preposterous," and placing the blame for current
disturbances squarely on Taruo, Secretary Zulueta uoolared that the government
could not negotiate with-"an individual who defies its authority and has set
forth to subvert its essence". Le warned iarue to work for his ends within
the framework of the Philippine Constitution and Government rather than to
precipitate a 'bloody revolution"a A;c,.in demanding "unconditional surrender"
of Tame and his followers, Zulueta promised that innediately after the dissi-
dents cease their "reign of terror" in the rural areas, "all organized military
operations against them will cease".
Whether the government will continue to deal with the agrarian problem
as essentially a police problem trill be a key issue during the forthcoming
session of the Philippine Congress which convenes 26 January,
SECRET
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At7R~IA
Atoedo Energy. The Australian Government is intensifying its efforts
to find raw materials capable of yielding fissionable substances and to
oooduct experimental laboratory work in the use of atomic onargy. Atomic
research is an important element in both the Antaroiio oxpedition and in
the Bureau of 11ineral 2esouroes' search for CO tcohnioal officers to survey
Australian resources, including sourced of radioactive minerals. The
Director General of 1iunitiona, %+r. Brodri.dd, stated that the Goverment
planned to send some 200 young scientists to the UK for study at the Harwell
atemio energy base.
Eoomomi.o. In line with Atmtraliaes nee. d to increase exports for dollar
earniu poccs, 1'_-cnscS havo baen issued to exporters -hipptrg
cheat to Switzerland, the Philippines, Brazil, and ~'hanghai. iyhils a clear
definition of export policy awaits the results of the 12 January Federal
Cabinet meeting, it is unlikely that domastic consumption of such essential
requirements of cement, steel, pig iron, and woolen worsteds rill be
drastically altarod.
A British Food Lission is now in Australia to discuss mans of increasing
Ataetral; an food exports tc the '.. 1-In T~ Qc1 oz's c t3ccti , z c are to provide the
producer with an assured market by expanding or revising existing long. term
contracts; and to explore the po,asibilities of opening new a?eas for food
production through the faailitierr of the `Tritish Overseas Food Corporation,,
The present crisis in Ind,aiesia has 50X1
been caused in a large degree :;r the z ure or o parties to :woep the
two annexes of the so-called "rhristmas Program" of the 'Ulf Goad ct'fioes
Caanittee. In general both p',.-ties seem willing to accept Amex the although
it tends to favor the Dutch s.'noe it follcrvs lines of demaroat.,on .claimed by
them since the start of their police action last July. However,. At;zex Two,
ordering cessation of all activities relating to the organisation oj' states
from territory involved. in tLe dispute, was unacceptable to the ,iutah in its
original form. In fact on ! January 1948 the NEI Goverment annctmct d the
formation of an Interim Federal'Government, whioh included at lea.it four
states formed from former F,publioan territory, In, order to breal the existing
deadlook arising from fail- re to accept Annex A.o, the US delef ati,vi of the GOC
drew up a set of principles regarding the nethods by r, iich disputed areas could
decide their political. futit'e. At the present time it seers probable that both
parties will accept the IatEst point's advanced by GOC but considerabl% diffi.
oultymay be expected in seoiring irn lementation of such an agreement r Cached
between the Dutch and the Tkpublio0
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