INTELLIGENCE HIGHLIGHTS NO. 3 WEEK OF 25 MAY -31 MAY 1948

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01082A000100010018-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 7
• Document Creation Date: December 9, 2016
• Document Release Date: November 1, 1999
• Sequence Number: 18
• Publication Date: May 31, 1948
• Content Type: PERRPT

DOCUMENT NO.
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INTELLIGEI-iCE :HIGHLIGHTS NO. 3DAT ~S fl ViE ~;~ ~: 720 44
WEEK OF 25 MAY - 31 MAY 1948
SECTION I. SUI.UTAfY OF FAR EAST ^1REt,DS Ann) DI VELOP?2F.'.I'NTS
A total of 129 Japanese purgees were reinstated to public office by
the appeals board with SOAP approval on 22 May. Inasmuch as most of the
reinstated purg;ees are business executives this action ,All place in
circulation executives whose assistance will be valuable in a Japanese
rehabilitation program (page 3).
The significance of the shift in the high command of the Soviet
Forces in North Korea remains uncertain since there is no indic^tion as
to Whether this change is a routine change of station or a prelude to
a shift in Soviet policy in Korea (page 3).
A new cabinet finally has been formed at Nanking with the most
significant change being the return of General Ho Ying-chin to the post of
Minister of Defense. However, political conditions in Nationalist China
remain unstable, as indicated in student unrest, currently manifest in
demonstrations c4ritical of US policy toward Japan (page 5).
A Soviet economic offensive in Southeast Asia, to match their propa-
ganda and political offensive in that area, appears to be developing in
view of reported trade proposals made by the no:wrly opened `soviet le,ation
in Bangkok (page .).
The announcement by. the USSP of an agreement to establish relations
between the Kremlin and the Republic of Indonesia has jeopardized further
the achievement of a political settlement In Indonesia and may result in
the Netherlands Government, at least temporarily, suspending negotiations.
(page ').
Further evidence of the Australian labor governnent's declining
strength is seen in the unexpectedly large vote which resulted in the defeat
of the government's proposal to ammend the Constitution to provide for
permanent rent control - (pare 7).
NOTEg In succeeding sections of this Weekly, the following marginal
notations are used:
(1) An asterisk (*) -- To indicate that all or part of an
item is based solely upon information from State's
"S/ distribution" series.
(2) "A", "B", or "C" Importance, in BfEes opinion, of
the item, with "A" representing the host important ones.
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SPCTION II. DEVELOP'. E!ITS IN SPECIFIED APEAS
USSR attaching notable priority to trade with Southeast Asia "A"
A Soviet economic offensive in Southeast Asia to match their propa.
panda and political offensive in that area has become inoreasingly apparent
since the opening in March of a Soviet legation in Bangkok. A commercial
organization, the "Exporthleb", attached to the Soviet mission has already
made specific offers of industrial items (coal, coke, steel plates and
bars, cement, and chemicals) in exchange for rice, rubber, teak, agri-
cultural oils, eto. The trade proposals include quotations which in some
oases underbid the US and UK and in others are on items vrhioh are rot
available from the US and UK. The Soviets have gone so far as to indicate
that in a short timo they will be able to offer piece goods in large
quantities. While the character of these proposals would indicate that
a determined economic offensive is just beginning a few commercial trans-
actions have laready been completed, including shipments of rubber from
Malaya and a rcoently delivered cargo of cement to the Philippines. The
Soviets apparently are quite aware that their propaganda and political
offensives, if successful, must be accompanied by some tangible economic
benefits, and are attaching a notable. priority to Southeast Asia. This
may be due to part to the Soviet desire to obstruct the proposed US
program for the-utilization of Japan's economic capacities.
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JAPAN
Japanese Purees Reinstated. A total of 129 Japanese purgees were
reinstated public office by the 'appeals board with SOAP approval on
22 May. The list includes former Chief Cabinet Secretary i'?ARAHASHI
Watanx, who is apparently a political ally of Premier ASHIDA and may
therefor be expectLd to reappear in higher government circles. Con-
spicously absent from the list, for want of SCAP Goverrmnent Section
approval despite the recommendation of the appeals board, were INUKAI
Ken and ISHflASHI Tanzan, former leading figures of the Democratic and
Democratic Liberal parties respectively.
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It is reported that most of the 129 reinstated purgees are business
executives. It is possible that these reinstatements lwere made to
correct some of the injustices of the purge or possibly to place in
circulation executives whose assistance will be valuable in a Japanese
rehabilitation program.
Proposed 1948-1949 budEet announced. The Japanese Cabinet is
reported ready submit the 1940-1949 budget to the Diet. The total of
399,300,000,000 yen ("7,986,000,000 at the current official exchange
rate of 50 yen to the dollar) is higher.than any budget in Japanese
histo rj. The revenues of the proposed budget include 263,200,000,000
from taxes, 94,340,000,000 from profits of government monopolies,
7,200,000,000 from Government-o-~oned enterprise revenues and assets;
15,600,000,000 from miscellaneous revenues and 18,800,000,000 from
"other" revenues. Expenditures include 100,600,000,000 yen for war
termination disposal expenses, including cost of handling reparations
plants and facilities; 51,500,000,000 yen for price adjustment (apparently
subsidies); 17,000,000,000 for covering operating deficits of the
Governmment-owned railroads, co*rmunications, and shipping enterprises;
14,900,OOO,000 for tax transfers to prefectural governments; bl,000,000,000
for public works projects; 18,900,000,000 for Government investments;
2,100,000,000 for railroad and communications administrative supervisory
expenses, and 123,200,000,000 for "other" (probably mainly occupation)
expenses.
The new budget calls for an increase in taxes on-cigarettes and a
rise. in postal, railroad and other public utility rates. It also provides
for application of the savings'incurred,by the suspension for a year of
interest payments on war bondsato public works and a new public school
s", stem.
Lt. Gen. Korotkov Commanding; General of Soviet Forces in "'orth "B"
significance of the move is still uncertain and there is no indication
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and have been replaced t. Cen.: er u ov an Col. uznotzov.
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v4.
as to whether this change is a routine change of station or that it is
a prelude to a shift, in policy. Although it is possible that Gens.
Korotov and Shanin are returning to .'oscovi to receive new instructions
there are only evidences of routine Soviet troop movements and reductions
in North Korea and no clear indication that the USSR is making preparations
for immediate withdrawal. It is to be noted, also that for the .firm,
time in many months the Soviet:com' and has displayed unusual courtesy
in their personal dealings with US personnel in North Korea.
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9hinese ent AmolUR,n ,tt2 US policy , Japan has been gaining "A"
momentum in recent weeks, centering in Shanghai and spreading to Peiping.
A mass demonstration scheduled in the former city for 30 May was tempo-
rarily postponed, but Shanghai municipal authorities are alerted for any
demonstrations which might erupt into violence. The Chinese etudentc, who
have actively expressed their opposition to certain National Government
policies through riots and demonstrations in recent months, now appear to
be focussing their traditional anti-foreign sentiment toward the US
Japan policy. The growing student anti-American feeling gains added
significance from the fact that most criticism of US policy in Japan until
now has come primarily from the press, while the National Government has
outwardly and officially supported this US policy. Though it is generally
recognized that the current anti-American move is in reality being exploited
by Communist and other dissident elements and aimed at discrediting and
embarrassing the Government, there is danger that this movement might mark
a portentious step in the development of an attitude of suspicion and
antagonism towards American policies.
Coma=ietq g32gne their ,rex,,,,gep M Ur offensive last "B"
week when they launched an attack upon Changchun, isolated Nationalist
garrison in central Manchuria. The attack, largely diversionary, was under
taken at the same time that additional Communist units were moving west-
ward to the Chinchou area, where the main attacks are still expected.
Communist successes were reported in neighboring Jehol Province where they
occupied Lunghua and Pingchuan, north and east, respectively, of the be-
leaguered provincial capitol Chengteh. In Shantung, Communist snits under
Chen Yi are recrossing the Yellow River and have already out the Tsinanm
Pukou railroad at Tatan, while Lai Po?chenGes forces are apparently driving
eastward across the Peiping-Hankow railroad toward a rendezvous with Chen
in northeast Ronan.
A. new ~e t g get h&& been JgXMgd by Premier Wong Wen- hao "B"
with the approval of Chiang Kai-shek. The complexion of the cabinet remains
appreciably the same with the only significant changes the appointments of
General Ho Ping-chin as Minister of National Defense and Wang Ycn wu as
Minister of Finance. General No, another of the Generalissimo?s old
reliables, served as Minister of War 1930-1944, and Chief of Staff 1937-1946,
However, he is not generally considered an especially competent military man
by foreign observers, although he is believed to wield a powerful influence
within the Nationalist Army. He replaces Pal Chung-hsi, who supported
Li Tsung jen for Vice President against the Generalissimo?s opposition..
Wang Yun wuus appointment is noteworthy since, as deputy premier under Chang
Chun, he advocated the relaxing of foreign trade and exchange controls, a
policy rejected by Premier Chang.
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The Soviet Em assn j ,Banks issued a statement on 29 May, denying "C"
current rumors that Roschin, new Soviet Ambassador to China, would under..
take mediation in the Chinese civil conflict.
e Imnort J4 norj .ir k S em. 0. 1. Y\L , newly appointed Governor "C"
of the Central Bank, announced on 31 May the abolition of Circular 131 which
required importers to deposit a margin of 5O of the value of the cargo with
the Central Bank when applying for an import licctse. Importers registered
strenuous objection to this regulation. (Re FF*/P \'eekly 18-24 May)
At the same time Yui announced the adoption of an exchange link system,
effective immediately, under which exporters selli,tg exchange to appointed
banks will receive exchange surrender certificates eiqual to the exchange sold.
In turn importers are required to buy from exporter, or brokers exchange
surrender certificates equal to the amount of the tort license. Yui said
rice, wheat, flour, cotton and fertiliser imports will-be excluded from the
new system. The link system is not new to China, hoi.tver, its application
at this time indicates the seriousness of the shortage of the ,government?s
foreign exchange holdings. The volume of general impct?ts, which are chroni-
cally in excess of exports, will drop accordingly if dependent upon foreign
exchange derived mainly from exports.
Foreign Trade. Chinese Customs statistics reveal ' at both B \-ch imports "C
(US $32.3 million) and exports (US $17.3 million) were -urger than :hose
reported- for January and February, with an unfavorable ba\ance also \vater.
The import excess for the first quarter of 1948 stands at %bout US $20 million.
Petroleum products, valued at US $5.7 million continued in March as pri''cipal
China import, followed by machinery and tools. Piece goods ',UUS $2.8 mill-;on)
led exports, followed by hides and skins.
Floods. The Yangtze river is approaching the danger.level.g some road, "C"
and farm lands in the Nanking area are under water and Hankov Is threatened.,
Other areas reported flooded include Hengyang and Rweilin in scuxth central
China, and Iintak and Kukong in northern Kwangtung.
S:
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T'T!) 'aST_Aa
Announcement of F'S,~;Tt.~!?e ublic of Indonesian relations eor?ard zes GM
negot ns. The Soviet announcemanL that representatives of the
Indonesian Republic and the tTfl R agreed at Pra.pue on 22 ?tay to establish
consular relations has jeopardized further the possibility of reaching,
a political settlement in Tndoriesia. Discussion of r.errsblican relations
'with the tTSS,' comes at a particularly awkwird time since the question of
the "epubl_.iels foreicn relations is a major point upon which little or
no rrogress has been radeQ It would apnear that the 'Republic through
characteristic lack of coordination and the lack of co aunications v?1th
its representatives overseas now faces the dilemma of -,ether to affront
western nations by accepting Soviet recognition or to alienate its own t ublic opinion by disavowing recopni.tion at a time when it believes that
,he Dutch are preparing to dispose of the Republic by force, For the
Netherlands it represents an opportunity to suspend negotiations on the
grounds that Republic-USSR. relations are contrary to the Renville agree-
ment. The T11 Good Offices Comrittee and particularly the T'S delegation
is now faced with its most serious crisis in view of the probable failure,
under circumstances sasil.,y exploited by the P 3R, to achieve a political
agreement r
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SECTION III, DIGEST OF II 'ORTANT STUDIES ARD ESTIMATES
.J`TS
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