INTELLIGENCE HIGHLIGHTS NO. 59 13 JULY - 19 JULY 1949

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01082A000100020002-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 9, 2016
• Document Release Date: August 17, 1998
• Sequence Number: 2
• Publication Date: July 19, 1949
• Content Type: PERRPT

Approved For Release 2000/09/12: CIA-R 79-01082A000100020002-6
FAR EAST/PACIFIC BRANCH
OFFICE OF REPORTS AND ESTIMATES
CENTRAL INTELLIGENCE AC E CY
COPY NO. 1
NOTICE: This document is a working paper, not
an offioial CIA iesuanue. It has been oo-ordina-
ted within ORE, but not with-ie IAC Agencies,
It represents current thinking by specialists in
CIA, and is designed for use by others engaged
in similar or overlapping studies. The opinions
expressed herein may be revised before final and
offioial publication. It is intended solely for
the information of the addressee and not for fur-
ther dissemination.
Copy fors
Chief. B /FE
DOCUMENT NO.
N CHANGE IN
CLASS. []
ECLASiE7
ASS. GN1~N~r,L:J TO: TS s c
DATE"
4ins-VIEVVER. - iK~T~
Approved For Release 2000/09/12 : CIA-RDP79-01082A000100020002-6
10
 Approved For Release 2000/09/12 : CIA-RDP79-01082A000100020002-6
OFFICE OF REPORTS AND ESTIMATES, CIA
FAR EASTAACIFIC BRANCH
INTELLIGENCE HIGHLIGHTS, NNO. 59
13 JULY ., 19 JULY 1949
SECTION 1. S?RR.4ARY OF FAR EAST THE -MS AND DE LOPITE1TTS
Most Far Eastern nations have remained noncor.mittal in response to
the Chiang-Quirino proposal for an anti-Comunist "Pacific Union" (P. 2)"
The Republic of Korea has asked that UN military observers be posted
along the "incident"-ridden 38th Parallel (po 3).
The Chinese Communists have announced the beginning of a new "major
offensive" in central China after a two-month lull in operations (pr, 4).
Meanwhile, Communist intransigence in the treatment of foreigners appears
to be threatening future relations with the 'lest to the Communists 4 own
possible disadvantage (p. 6).
The marginal notations used in succeeding sections of this Weekly
("A", "B", or "C") indicate the importance of the items in RIFE opinion
with "A" representing the most important
Approved For Release 2000/09/12 : CIA-RDP79-01082A000100020002-6
 Approved For Release 2000/09/12: CIA-RDP79-
ffl'082A000100020002-6
GEVERAL
Reactions to "Pacific Union" Proposal--1%& Chiang-Quirino proposal for "de
a "Pacific Union to counteract and contain Asiatic Communism, has been
received with little enthusiasm. Both the apparent unwillingness of the
U to support such a bloc and the fact that initiative for the envisioned
union came from the "retired" leader of the prostrate and discredited
Chinese Nationalist Government evidently have caused most Asiatic nations
to hesitate before indicating their attitudes.
Three areas -- Nationalist China, the Philippines, and the Republic of
Korea --- have endorsed the plan. Other countries, however, have boon
either noncommittal or entirely silent. The Prime isinister of Thailand
has deferred a decision in the matter by saying that Thailand has not been
invited to participate in the union. The Burmese Foreign Minister sta,;od
on 14 July that Burma "may favorably consider" the formation of a Pacific
bloc if it would work for world peace and prosperity. However, he ques-
tioned the effectiveness of such a union in combatting the Communist threat
in Southeast Asia.
According to Philippine President Quirino, representatives of the
Indonesian Republic now in the Philippines are enthusiastic. The Nether-
lands s=inister to the Philippines, however, has been instructed not to
commit himself. In Indochina, the diplomatic counselor to the French ktigh
Commissioner is worried over the implications of Vietnamese cooperation
with the Chinese Nationalists, fearing that such act-ion would be inter-
preted as interference in Chinese internal affairs and constitute an
invitation for a Communist attack on Indochina.. Australia and New Zealand
have made no comment,.
Invitations to a preliminary conference to discuss the formation of
the union have not yet been. issued,, Before doing so, President Quirino
plans to recall Ambassador Romulo from his post at the UN, to interrogate
Pacific nations as to their recommendations. Meanwhile, Quirino, Chiang,
and Korea's President fi'.hee will undoubtedly continue to press for US sup-
port which, if received? would be a strong inducement for the participation
of other presently noncommittal nations,,
Approved For Release 2000/09/12 : CIA-RDP79-01082A000100020002-6
 Approved For Release 2000/09/12: CIA-RDP79-0jW2A000100020002-6
KOREA
Republic requests UN Border Observers-a?In a recent letter, the Foreign "B"
Minister of the epu o 0 Korea uggested to the United Nations Com-
mission on Korea (UNCOK) that a unit of UN military observers be estab-
lished in Korea? to work with UNCOK in halting attacks by northern Korean
forces along the 38th parallel.
Approved For Release 2000/09/12 : CIA-RDP79-01082A000100020002-6
 Approved For Release 2000/09/12 : CIA-RDP79-('82A000100020002-6
A previous proposal for Ulf military observers had been considered
by MCOK during April and 'stay, 1949, but the matter was dropped with-
out action being taken, At that time, Commission members were divided
on the possible effectiveness and advisability of observers in Korea,
The UN Secretariat, further, informed UNNCOK on that occasion that UN
military observers were sent to the field as a result of Security
Council or General Assembly action,, The Secretariat stated that since
the US was withdrawing its armed forces from Korea, it could be pre-
sumed that America, at least, was satisfied that no threat to inter-
national peace existed in. the area and for this reason there appeared
to be little justification for a military observers' mission.
The pressure of the present formal Korean request for observers
may force UNCOK to re-open the question. On the basis of recent inspec-
tions of trouble spots along the parallel, the Commission, if it so chose,
could adopt a resolution for presentation to the fall meeting of the 1JN
General Assembly stating that a threat to international peace exists in
Korea and recommending the dispatch of military observers,: However, it
is prohaLle that, unless the US strongly supports the Korean suggestion
for observers, TMOK will avoid further action during the final weeks of
the Commission's stay in Korea,
CHINA
New Communist Offensive starts- 1r. central China? the two month lull in "A"
Military operations has apparently ended. Peiping radio announced. that
Communist armies had launched a "major offensive" along a front extending;
eastward from the Yangtze gorges In Hupeh to the middle reaches of the
Kan River in Kiangsi,, Peiping radio claimed several important victories,
including the capture of Ichang and Shasi (west of Hankow) and Kian and
Anfu (south of Nanchang),. The Nationalist later claimed that Man was
retaken in a oounter-attackee, The Communist offensive, according to a
Shanghai dispatch.a, is aimed in the direction of Canton, some 4-500 Miles
to the south,, The only sizable Rationalist force between the Communists
and Canton is the 175,000-strong Army commanded by PAI Chung-hsi4 PAI is
expected to withdraw into Kwangsi. as soon as the Communists approach his
present positions in the area about Changsha. Once fully under way, the
Communist regulars, aided by irregulars already operating in south China
and by the absence of firm Nationalist resistance., should be able to roll
into Canton in about 30 days.
Arbitrary taxation of foreign firms--Communist authorities recently have
imposed arbitrary levies on business concerns which discriminate particu-
larly against foreign companies. Although nominally imposed as income
Approved For Release 2000/09/12 : CIA-RDP79-01082A000100020002-6
 Approved For Release 2000/09/12: CIA-RDP 'b82A000100020002-6
taxes, the assessments bear no clear relation to earnings. The amounts
charged apparently were determined arbitrarily on the basis of what the
traffic could bear. Thus fare, these taxes have been imposed in two
cities. In Mankow, a levy totaling over US$600g,000 was imposed9 in
Tientsin, the levy totalled US$2,000,000. It is expected that Shanghai
will soon follow suit with a very much larger levy,,
Most foreil7- firms do not have sufficient cash reserves to play such
taxes. As a result, they are faced with the alternative of drawing funds
from abroad or else liquidating local stocks and capital equipnent.
Foreign businesses are apprehensive that these taxes w-,.ll serve as pre-
c~:;dents for further arbitrary assessments in the near future and that
such taxes will be deliberately applied in some areas to squeeze out the
foreign ooripe ti tion in .favor of government trading orpranizationaa
A rgicultural disasters will del. rocover ---Communist China is mobilizing "Br
for an ail -out fight against a series o agricultural disasters which
have plagued the countryside during the past several months. Some million
acres of rice land in the Yangtze valley have been flooded, spring drouths
have damaged crops in north China and south Manchuria and locust swarms
have further reduced northern yields. The Communist press is filled with
directives regarding famine counter-measures and dyke-building.
This threat to the food supply will undoubtedly force the Communists
to divert match of their energy from the task of rehabilitation to t1,,3 job
of salvaging crop production,, Coarse grains with short growing seasons
are being planted in the north with a chance of maturing before au?hmn
frosts. Secondary dykes are being thrown up to keep the flood waters of
the Yangtze from inundating; new crop areas,, The revenues of the Communist
regime, nonetheless, will be out seriously and general economic recovery
in Communist China will be delayed by the reduced supply of food and raw
materials for domestic consumption or export.
Arntitioua five-yerar rail plan---The Corauunist All-China Pailroad e{Tulatory
Conference has okayed a five--year plan to restore China's existing 16?700
miles of rail line completely and to add another 6,600 miles of track to
the system,, Railroads have already been given a high priority on manpower
and raw material allocations by the Communists, and they are working to
rehabilitate the lines they now control,, Communist successes in rehabili-
tation to date have been achieved through a process of cannibalization which
has left the lines weak and inefficient. Double-tracked lines are now
single-tracked ones bridges,, ties? rails and baliastinfg are often of an
emergency natxre. The Communists will soon arrive at a point where canni-
balization is no longer rewarding and, with further expansionD Will find
MC O
Approved For Release 2000/09/12 : CIA-RDP79-01082A000100020002-6
 Approved For Release 2000/09/12 : CIA-RDP79~b82A000100020002-6
themselves facing a shortage of rolling stock and locomotives. In all,
restoration of China's rail system is estimated to require at least
US$300 million of imports. The CCP should consider the rebuilding of
existing lines an amply ambitious project; expansion in the next five
years seems a grandiose dream.
Persecution of Foreigners may backfire-Communist authorities in the "}3"
Yangtze Valley are doing; nothing to halt the abuse of foreigners, par-
ticularly Americans, in that area and the harsh treatment of foreigners
apparently has either the direct sanction or the implied approval of
local Communist officials0 banking authorities have insisted on "shop
guarantees" for Ambassador Stuart and his party before the issuance of
exit; permits for his return to the US. These regulations require that
all claims against departing foreigners must either be satisfactorily
settled, or assumed by a responsible person or firm remaining behind,
before any travel permit will be issued. If the "shop guarantee" form-
ula is universally applied, it could conceivably result in a situation
whereby all foreigners remaining in China would find themselves hostages
for those already departed.
Anti-foreignism, as exemplified in a number of Shangahi incidents,
may derive from a reaction to Communist propaganda, lately intensified
by the strained economic position of the blockaded city. It further
reflects Communist inexperience in city administration, and strong Com-
munist suspicion of "imperialist" influences in general,. The end result
of continued anti-foreignism will be to deprive Communist China of the
services of foreign money and skills and adversely affect Communist chances
of recognition by Western Powers. Unless curbed, the nationalistic im-
pulse so carefully nourished by the Communists may well prove disadvan-
25k a'eous to them..
Approved For Release 2000/09/12 : CIA-RDP79-01082A000100020002-6
 25X6A
Approved For Release 2000/09/12 : CIA-RDP79-01082A000100020002-6
Approved For Release 2000/09/12 : CIA-RDP79-01082A000100020002-6