INTELLIGENCE HIGHLIGHTS NO. 43 9 MARCH - 15 MARCH 1949

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01082A000100020018-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 12, 2016
• Document Release Date: June 13, 2001
• Sequence Number: 18
• Publication Date: March 15, 1949
• Content Type: PERRPT

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FAR EAST/PACIFIC BRANCH
OFFICE OF REPORTS AND ESTIMATES
CENTRAL INTELLIGENCE AGENCY
WORKING PAPER
COPY NO. 2
NOTICE: This document is a working paper, NOT
Mrrioial CIA issuance, and has not necessarily
been coordinated with other ORE producing com-
ponents. It represents current thinking by one
group of specialists in CIA, and is designed for
use by others engaged on similar or overlapping
studies, The opinions expressed herein may be
revised before final and official publication?
It is intended solely for the information of the
addressee and not for further dissemination,
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OFFICE OF REPORTS AND ESTIMATES, CIA
FAR EAST/PACIFIC BRANCH
INTELLIGENCE HIGHLIGHTS NO. 43
9 MARCH - 15 MARCH 1949
=PION I. SUMMARY OF FAR EAST TRENDS AND DEVELOPMNTS
SOAP has attacked the Japanese Governmentos subsidy policy and issued
a directive to the ailing coal-mining industry (p. 2).
The Kim mission to Moscow may presage integration of Northern Korea's
enonomywith the USSRos Northeast Asian oomplex (p. 3).
Treatment of US officials in Manchuria and North China, while by no
Amara liberal, seems to reflect a Communist hope of eventual restoration
of oommeroial relations (p. 4).
Under the continued stress of internal disorder, Burmags economy is
rapidly approaching the level of bare subsistence (p. 7).
Philippine officials are concerned over the possibility of alien
agents being among the stateless Shanghai refugees at Samar (p. 7).
marg na nota ions used in succee ng secs one of this Week y
("A", "B" or "C") indicate the importance of the items in OE opinion
with "A" representing the most important.
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SECTION fl. II. DEVELOP1ENTS IN SPECIFIED AREAS
MAN
Events on the left-wing. The latest USSR move in Japan is an invitation
to the National Counoil of Industrial Organizations (NCIO), the nation's
largest labor federation, inviting two Japanese labor leaders to attend
the 10th National Convention of Trade Unions of Soviet Russia, scheduled
for 19 April in Moscow, The invitation oomes shortly after a World
Federation of Trade Unions' bid to Japanese labor to join that Soviet-
dominated body Which SCAP is expected to disapprove. The new move is
obviouely intended to make propaganda capital out of what will undoubtedly
be another SCAP refusal.
Meanwhile, the Japanese Government's general anti-Communist policy is
to be implemented in part by the improvement of the police force. Present
plans call for improved mobility, better communications and an increase
in armament to more than 123,000 pistols from the present 25,000. No
increase in the present strength of 1250000 is anticipated, in part be
oause any enlargement of numbers would require Far Eastern Commission
approval,
'While various new labor law restrictions are expected to limit Com-
munist activity indirectly, a direct assault on the Japan Communist Party
(JCP) will be investigations by the Cabinet's proposed Ue-Japanese Affairs
Committee. The present government is expected to pursue its anti-Cam
=mist course cautiously, however, so as not to expose itself to SCAP
censure on the grounds of being "undemocratic" or to invite foreign crit-
icism,
The JCP, aware ar a strengthened seourity systems menace; has
attacked the police reorganization as repressive and fasoistiop Party
propaganda claims a "war scare" is being fomented to justify a larger
police force, The Japanese press, in turn, has recently charged the
Communists with attempting to infiltrate the police, Careful screening
of police candidates in the past apparently rendered penetration negli-
gible. The JCP now is reportedly attempting to recruit new members by
intimidating policemen with a "Red China" scare and predictions of the
early downfall of the YOSHIDA Cabinet. Whether the present infiltration
attempt will be more successful than those in the past remains in doubt.
Industrial subsidies attacked. SCAP's new hard economic line was indi-
two itstisl-oatoorweek. First, financial advisor Joseph Dodge
announced that the Japanese economy had become unduly dependent on
Government subsidies and deficit financing, as well as continuing US aid,
In a severe attaok on the unbalanced Government budget, Dodge declared
that such dependence must cease, inflation must be halted and the economy
stabilized. Premier Y oshida followed the Dodge statement with, an
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announcement that the recently 'completed budget must he rewritten to
include Dodge's recommendations, a move designed to strike terror in the
hearts of most Japanese industrialists who must depend on Government
subsidies to meet their financial needs. Japanese could take some com-
fort frau the fact that Dodge did not recommend currency devaluation, as
ba had done in Germany in 1946.
SOAP aimed a further blow at the crucial but sickly coal-mining
industry, which has an estimated 20 million yen deficit to face in this
eal. year, SCM', in a directive, ordered the Government to correct
eurrent malpractices - some mines are behind in meeting their pgyrolle -
ad improve operations. Both ends are to be accomplished without in-
creasing the price of coal and without further Government subsidies,
meviously scheduled at 12 million yen this year.
kauBsagia`. Pointing out that Japan's economic future is
dependent upon development of exports, SCAP has blamed industry's
failure to attain maximum efficiency and output on the considerable
amount of obsolete equipment presently in use and reports that selected
items of machinery and equipment, as well as replacement parts will
have to be imported from the US. Although Japanese industry hits a
considerable capacity for making machinery, SCM' considers that the
lack of access to world technological developments for the past eight
years and the lack of repair and replacement parts for existing machines
have badly handicapped production in the textile, plastic, communications
equipment, metal and electric power industries, as well as in scientific
and technical research and development.
ACM
AggliaLtastgam, Puppet premier of the Korean Democratic Peoples
Republic, Kim Il Sung, and the accompanying members of his cabinet have
received VIP treatment in !escow, including an audience with Stalin.
Designed to cement Soviet-Korea ties more securely, the invitational
Journey - in two USSR transport planes accompanied by an honor guard of
four fighters - was psychologically well-timed on the heels of the UN
rejection of a North Korea bid for membership. This display of the
high regard in which the USSR allegedly holds its puppet state probably
presages an intensive effort to integrate the economy of northern Korea
with the general Soviet plan for Northeast Asia.
Mile Korea is more important to the USSR as a military base than in
any other capacity, it has definite economic possibilities when linked
with Uanchuria and the Soviet Maritime Province. Mile its industrial
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capabilities are still well below Vestern standards, Soviet training
of technicians is continuous, Soviet advisors are directing rehabilita-
tion and development, and constant Soviet propaganda urges increased
efforts on the part of Korean workers north of 38,
Aittis-guakvilla cameainniztensifiecl, The Republic of Korea has intensi-
fied its 'efforts to eliminate Comunist-organized guerrilla bands that
? have terrorized Cholla-namdo and Cheju-do since the abortive Yosu revolt
In October, 190. To accomplish this, the Korean Army has activated a
.)pecial combat command under Brig, Gen. Chung 11 Krona and Rhee hao sent
3cme Minister Shin Sung Mo to Cheju-do to institute a more effective
suppression campaign, Possibly resulting from Shines presence, Korean
Army units on Cheju-do recently have entered on more active operations
including night patrols and forays into the mountainous interior of the
island*
Terrain difficulties will prevent eradication of all Cholla-namdo
and Cheju-do guerrilla units, More important, however, suppression of
guerrillas in the southern part of the Korean Republic is less dependent
on Security Force efficiency than on the ability of the Government to
implement economic and police aanindstration reforms to reduce peasant
discontent and bring the local population to the active support of the
Government. The likelihood of any such reforms in the near future is
slight,
CHINA.
HO Ying-chin appointed Premier. General HO Ying-chins appointment
as Preiler (and concurrently Defense Minister) represents a further
strengthening of Acting President LI's peace efforts. Despite HO's
being on the war criminal list and his past anti-Communist record, his
appointment should not prejudice peace negotiations; the Communists may
even plan to capitalize on HO's influence over the military particularly
over certain Whampoa Clique generals. In accepting the Premiership,
HO has apparently decided to cast his lot with the peace front, reportedly
on the condition that he be granted complete authority to run the Govern-
ment in accordance with the Constitutional provision of a responsible
cabinet and that he be authorized to make extensive military reforms.
? Position of US officials in Communist-ocou ied cities, The Com-
munists have adopted a restr ctive interim policy toward American repre-
sentatives in the major occupied cities of Mukden. Tientsin and Peiping.
The US Consulate in Mukden was deprived of its radio transmitter, and
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has not not been heard from since 18 November, According to the Mukden
USIS offices has ceased to function, the Consulate staff has been interned
and the Consulate's electricity, has been out off.
The Tientsin Consulate's radio transmitter was closed down on
22 January, Beginning on 6 March, however, the US Consul was granted
permission to use public telegraphic faoilities for plain messages,
ECA supplies in Tientsin were confiscated in early February. The USIS
newsfile was suspended awing to Communist pressure, but the USIS library
apparently remains open. The Tientsin Consulate staff has not been
interned nor has the Consulate been under guard since the first days of
the occupation, However, Consular officials have not been received
by any but very junior Communist officieIs.
In Peiping, seven weeks after the communist occupation on 22 Jen-
rary, the US Consul is still permitted to operate his radio transmitter.
Other restrictions are in force, however, Communist authorities in
Peiping do not recognize the official functions of any foreign consuls
Peiping including the Soviet Consul General who has consequently
closed his office. Consuls are required to deal with Communist officials
only in individual capacities, and are unable to contact any responsible
officials. The US Consulate is guarded and rigid restrictions on entry
and exit are in force, ostensibly to prevent incidents which could
"embarrass the Peiping Peoples Government?" Restrictions in Peiping
were further tightened on 27 February, when the Military Control Com-
mission restricted foreign correspondents' activities and ordered the
USIS office to suspend its newsfile. In mid-February, the Communists
confiscated over 100 tons of ECA flour, When the ECA representative
protested this action to authorities in Peiping, it was stated that. the
flour was the property of the Nanking Government and that, by virtue of
Peipinee surrender, it has become the property of the Communist
Government.
The aloof and uncooperative Communist policy used in dealing with
all foreigners and diplomatic representatives---particularly
probably
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probably will continue until their respective countries extend recognition
to a Communist Government, Another reason for refusing to deal with
foreign representatives in an official capacity, (which in international
law would not constitute recognition of the governments concerned)
may be that the Communists have been so preoccupied with the problems of
occupation and reorganization so suddenly thrust upon them, that their
policy toward foreigners and foreign interests has not yet crystallized.
In view of the grievances which the Communists bear against the US,
especially as emphasized by their propaganda in the past three years,
it is significant that US representatives in Communist areas have not
been dealt with more severely. That US'Consuls in Communist areas have
in general received the same treatment as other foreign consuls seems to
indicate that the Communists are being careful to preserve the possibility
of future diplomatic and commercial relations between Communist China
and the USG
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Communist preparations for a Political Consultative Conference
Regardless of the outcome of any peace negotiations with the LI Tsung-
jen Government, the Chinese Communists will probably convene a Political
Consultative Conference (PCC) within the next few months, Should formal
peace negotiations actually get under way and progress to the satisfaction
of the Communists (i.e. should a sufficiently large proportion of Nat-
ionalist figures agree to Communist term tantamount to surrender,)the
PCC may be called jointly by the Communists and LI Tsung-,;en. Those
Nationalists who do not agree to Communist terms would he excluded from
participation in the PCC. Should the negotiations break down completely,
the PCC will be convoked unilaterally by the Communists.
Among MO Tse-tung's eil-sht demands was one calling for convocation
of a TCC, with the mission of transferring all status and power from
the Kuomintang to a "democratic coalition government from which
"reactionary elements" were to be excluded., The Communists apparently
do not now contemplate holding a National Assembly. The Communist
New Year's broadcast made clear that the Kuomintan; as a party will
not be Included in the coalition government to be proclaimed by the
PCC. Instead, the coalition government "will be participated in by
proper representatives of all democratic parties and groups and people's
organizations."
Recent Communist broadcasts have been marked by continuous reports
on the creation and ,;rowth of various organizations of womens', students'
and youth groups. Regional and national?allerences of these organizations
are announced almost daily. Other confer4nces of trade unions and of
railway workers' labor federations have also been mentioned. It is
likely that these organizations are now being rapidly set up by the
Cornunists for the purpose of providing delegates to the prospective
PCC.
Inland Trade assistiu Communist expansion in Yangtze Valley,
According to reports, areas along the Yangtze River are arranging inland
barter with the Communists. This inland trade with its accompanying
prosperity will probably result in: (1) a considerable decrease of
opposition to the Communists in the Nationalist contact areas and: (2)
the further separation of such localities from the influence of the
National government. Once commerce is established local pressure
against resumption of hostilities might become great enough to hamper
resistance to the Communists seriously, and might even promote active
cooperation with the communists if continued economic activity can
be assured by such cooperation.
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Economic troubles increase. Burma's economy is rapidly annroaohing twr
the state of bare subsistence as a result of 'widespread civil warfare,
Although the 1948-49 paddy crop, upon which the country's economy is
dependent, was gotd, insurgent activity has prevented much of it from
reaching markets, Consenuently, rice exnorts this year will be far be-
low normal, Furthermore, British teak companies are discontinuing forest
operations after 1 June, Rangoon sawmills are closing in April, and mining
has been further curtailed, The Governmentus cash balances have been
virtually depleted while its budgetary deficit continues to grow rapidly
because of increased non nroductive expenditures, decreased revenues, and
dwindling royalties on exports, These deteriorating economic ccnditions
1-nve stimulated inflation in Burma, especially in Rangoon, and is reflected
in the increasing depreciation of the Burmese rupee, There are no indica-
tions that these trends will be halted or reversed and every reason to be-
lieve that they will accelerate.
Since a loan wae not offered by the Commonwealth Conference in New
Delhi, the Purmeee Oovernment may have no alternative but to commence
rrinting unsecured pnper money. However, such an undertaking will be diffi-
cult, or imnossible, unless the Bank of England and British Treasury repre-
sentativee on the Burma Currency Board are replaced and the Board transferred
from London to Rangoon. Even if this were accomplished, it is doubtful
that the Burmese would accept unsecured currency in view of their recent
experience with Japanese occupation money In order to forestall drastic
inflation which might well end in economic collapse, the Burmese Government
must either reassert firmicontrol over a large part of Burma or obtain
foreign financial assistance, There appears little likelihood that either
of these contingencies will occur in the near future,
PH _TT,TPMS
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Government concerned over rt( eecurity problem. Philippine officials
fear that potentially subversive individuals among stateless Shanghai
refugees on Samar Island will attemnt to remain in the Philippines beyond
the four months period of residence granted to theme As a result of alleged
Inadequate screening at Shar i, Soviet agents are reported to be among
the refugees, mostly 7hite Rueaians, who were brought to the Samar can
under the auspices of the PY International Refugee Organization (TRO),
Reportedly, contacts already have been made between suspect refugees and
pro-HSSP elements in the Philippines In an effort to cope with this
security problem) the TRO camp director is now cooperating with Philippine
intelligence organizations in an attempt to screen the refugees further,
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