INTELLIGENCE HIGHLIGHTS NO. 36 20 JANUARY - 25 JANUARY 1949

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01082A000100020025-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 14
• Document Creation Date: December 12, 2016
• Document Release Date: June 13, 2001
• Sequence Number: 25
• Publication Date: January 25, 1949
• Content Type: PERRPT

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PAR lamishemc MANZ
plPFICII c RZPORIS ISTIVATES
CINIRLL 11MILLIGNIICS AMOY
WORECIII3 PAM
11017011s This doeument is ? working paper. MDT
1777ioial CIA issuanoe and has not neoesearily
been 000rdinated with other produeing oar
ponents. It represents current thinking by one
group of speeialists 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 *instal publioation.
It is intended solely for the information at the
addressee and not for further dissemination?
OOP! POR
Book
SEC
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riDOCUMENT NO.
NO CHANGE IN CLASS. 13
DEOI,ASSIFED
CLASS. Chi n4GEo TO: TS
NEXT 11F-V1EW DATE'.
p,U144 E.V1VIEF-v. 372044
DPI
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OFFICE 01P RIFORIE AND E8TINETE6. CIA
PAR sArrfracsne BRANDS
INTILLIONICS 111001=211 L. 36
20 JAMEY .? IS JIMMY 1949
=now I. MOW OF PAR SANT IRS= AND mamma=
Chinese Communist stetessot of patsy towards Japan pointed out that
revival of trede between the too arise hinged on the elimination of remotion.
ary elements intim &panes. Oeveremmetimdemphasised that the *New Chine
intended Ulm* a voioe imtJapeneee affair.. along with the other major
powers (page 11).
Burma and Japan have conoluded a trade agreement oovering the exohango 25X
of $23 million worth of goods in 1949 (page 3).
Peipimg espitulated to the Chinese Communists this week and CHIANG'a
defeated armies were reported Withdrawing south from the tengtse defense
this (page 7). CHIANG taiosshek "retiredM (page 1) and left to LI Timm*
Jen the task of conoluding a pease with the Communists mho have not wavered
from NAO fee-tung's eight point demend.fOr virtual unconditional surrender
(P&P O.
. The Philippine Govermmeet is adopting stringent seourity regulations
in view of possible intlux of agente from China (page 10).
Derma is famed with a serious 'owned* crisis and is seeking foreign
fins's:dal mistaken?. (page 10).
The Rimers. are studying anti?Comesudet measures (pegs 11).
Korean rightist youth groups are being consolidated under President
Rh..'. orders (sw 6).
The marginal notations used in suseeeding sections or this Week*
IV, 40 or "0") indicate the iaportanoe of the items in 011 opinion
with "A" representing ths most important.
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sOWNWigin
.2.
SECTION II, DEVELOPMENIS 1ff SPECIFIED AREAS
GENERAL
Chine** Oamstnists state .1i towards J
MAO
A-Chineee Communist Partybroadoest from North Shensi on 19 -January,
reveals an increasingly conscious aggressiveness in development of a Chinese
Commaniet polloyfor Japan. Aimed at influencing the Japanese general
eleotions of 23 January, the Chinese Communist radio emphasised that after
8 years of combating Japanese inperialien, "New China," unwilling to deal
with Japameee reactionary elements, finds 'Japanese Oomeaniste and other
democrats" beet qualified to lead Japan 10 a "genuine close friendship"
with China* Dangling the prospects of renewed China trade before market-
seeking Japan, the broadcast stated that while Japan needs to establish
economic and political relations with "People's China," "Japanese reaption"
possesses nothing on which China must rely, !he Chinese Communists further
announced that "whether American impertaliits and their Japanese pawns are'
willing or not," the "New China" will concern itself with control of Japano
Probably the North Shensi broadcast contributed little to the surpris-
ing election summon of the japan Communist Party (JCP)* (The JCP increased
its loser house Diet Beate from 4 to 38 out of 466 seats.) The "New China"
pronounoemmat, however, played on the same note which JCP campaign psyoholegy
has stressed, namely,that Japan has nuels to min by being trimmily with e
Communist China*
Chinese CWmmunist allurements to Japan for potential economic relations
may be of considerable significance. Chineee Communist planners do not
expectemloszelie economic support from the USSR amdmaydesire to resnme
triode been these two economically complementary areas with the thought
that, through gradual, judiciously applied pressure, they can assist the
JCP* On SECTION III)
The expressed desire to participate in the control of Japan may indicate
a two.fold ambitions (a) to play upon Japanese fears of a Communist China
'while putting pressure behind alump-on.the-bandwagon movement, and CO to
help counter American influence in the Par East* Possibly anticipating' ?
international recognition of a Communist.00ntrolled Government of China,
the Chinese Communist Party undoubtedly aspires to China's present seat on
the Far Eastern Commission, where China holds veto power, and on the
purely advisory Allied Council for Japan, which anew China" could employ
as a sounding board to mould Far Eastern opinion*
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MINEAL (oontimued)
&Pen"Puna trade erranremsnt eonoluded
Japan and Burma have aonoluded a trade arrangement oovering the period
or 1 ismary to 31 Deeesther 1949. The arrangement oontemplates a trade
balaneed at 13 million dollars and is similar in outline to the ever-all
sterling area trade arrangimaent negotiated in the autumn of 1948. It
provides for the purchase of raw cotton, rise, lead, antimony, tin *oases*
tratese teak and rubber by Japan in exchange for cotton piece goods, silk
and rayon goods, setts* prn, corrugated iron sheets, truck tires. tubes,
pottery and petiolate.
Before the war, Burma was not important in the foreign trade of Japan
proper, aoerusting for only 0.6 percent of exports (mostly cotton goods)
and 003 percent of imports (raw cotton and sine). Currently, however,
trade with Burma is important to Japan because it affords a trade channel
in Southeast Asia, an area which Japan is anxious to develop so as to
lessen its 000110111.0 dependence on northeast Mien =Moats, now in large
part Communist-dceinated. Trade vAth Japan is important to Burma beoause
before the war Japan was a simificant market for one of Burnet:I major
exports?raw Gotten.
The trade arrangement* may encounter difficulties. It is problematical,
for example, whether the Iszterzutttonal Imergenoy Food Committee (WC) will
permit the allocation of rise to Japan. In addition, instability in Burma
will maks both the produstion and export of the required ocamoditdes
diffloult.
iMeeleM/411a
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Premier Lee Boa auk has instructed his Urea
National tith OmPe ) to accede to President Wheels ultimatum ?
requiring it to join the Great Korea Youth Corm (OKYO). Rhee has been
attempting to consolidate all rightiat youth organisations in a single
allegedly nnon-politioa2? front, under bis indirect leadership, designed
to defend the Republic against Gammaism and to serve as the nucleus of
a projected 50,000 men Mitts.. Premier Tee had built a strong political
following on the basis of his leaderahip of the MO, =I his initial
hesitation in ordering it to merge with the GSM uther Plieets =dni].
leadership incurred the President's displeasure. While the Prenierts
recent action nay improve his relations with Rhee, Lee will probably
continue to fight for political leadership of Korean Youth Ity attempting
to plass IWO members in key positions in the MC, the Militia and the
Are. Since the OM is to serve as the nucleus for the Militia, which
aSiEftRIPPPm
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um (Oont.)
? will be under Teets control in his position as NationalDefens? Minister,
he eau probably regain ouch of the power that be nov ?enrolees as Chief
of the INC in the Tooth Corps, The recent appointment of lee Chun Sik?
formerely a zuro deputy', as commanding officer of the regiment aesigned
the pcalticalAr important mission ofdefendingSecnis is indiotive of
Lee's political :strategy'.
IflJUIIILII
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CHINA
Nitionalist organised military resistance ends. The completely
demoralised and defeated armies of CNIANG Kai-shek are reported to
be retrofit:in south from the Nanking-Shanghai area and the Tants*
defense line. The oncoming Chinese Communist armies are believed
to have reached the Yangtze and currently to be amities orders
to woes the river. Prior to this leteet Chinese 00,mun1st advance.
CHIOS Kai.i.ehek, at long last, decided to *retire! and departed for
Peughne to "sweep the tombs of his emulators." Mein CUM left*
he turned over the confused remnants of his regime to Sating Presi-
dent LI Teung-jen, who is at Present frantically attempting to negotiate
an "honorable peace" with the Chinese Communists. Nowever, with the
disintegration at organised Nationalist military resistance, LI 'a
bargaining power is nil and he can expect little better terns from
the Chinese Communists than unconditional surrender.
Neanebile with the calm capitulation of the ancient North China
capital of Peiping on 22 January. the Ch:nese Communists added another
victory to their list and deftly administered the 'coup-de-grace' to
the Nationalist military position in North China. Nationalist Oen.
ru Tsom.yi surrendered Peiping to the Communists, in exchange for a
guarantee of his personal safety and the removal of his name from the
Communist list of "war criminals." PO apparently made this deal with
a view toward. getting out later and returning to his home territory
in Suiyuan Province, The Communists, on the other hand, probably
are aware or TO's intention to "go bank to the firm." and therefore
will make every effort to keep bin under their thunb so as to forestall
any possibility of his ever again becoming a formidable adversary.
The.peaceful'oapitulation of Saigon. Tientsin. and Peiping has
set a pattern which will probably be followel by the defenders of the
remaining Government...held cities of Nanking, Shanghai, Nankai'', Teingtao,
Sian and possibly Taiyuan. Consequently, the last major engagement
of China's civil war appears to have been concluded.
CHIANG Kai-shek "retires." CHIANG's decision to retire from the
Presidency of the National Government, et a time when its collapse
is imminent, ovidenoss his intention to demonstrate that Vice Pres-
ident LI faung-jen cannot make in "honorable" peace with the Communists
and that continued resistance under CHIANG's leadership is the only
alternative to unconditional surrender. CHIANG', action is also
calculated to put on the Communists the onus for declining to halt their
attacks 0=410 on terns contemplating early communisation of Nationalist
China.
Legally. CHIANG's "retirement! involves no more than his absence
from the presidential office, to which he may return at will. Be
still beads the Muonintang and its committees still control the National
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-6-
Government. Moreover, he has recently strengthened his authority
in various provinces of South and Southwest China by the appointment
of dependable subordinates to key positions. Mine plans have been
partially carried out to uan Taiwan as an ultimate haven for Nationalist
leaders despite the possibilities of a native uprising there, CHIANG
bus lade additional preparations to employ South China as a base of
resistant* and has mooed Government resources1 records, and personnel
both to South China and Tawas. If LI's efforts to make peace are futile,
MANG will be in a position to resume active direction of the National
Government and may head a government-in-exile with the hope
of recovering control of China as a consequence of World lir ///.
? Acting President LI '5 newly appointed peace delegates, SHAO Li-
tee and CRAIG Chih-ohung, have little to offer the Communists and
realisation of their difficulties probably will impel the majority
of Nationalist leaders who still possess regional authority to attempt
further resistance, probably in cooperation with CHIANG Kai-shek.
Leftist leaders and lesser Nationalist figures may aoco.ziodate them-
selves to conditions of Communist rule, somewhat as those in the
Peiping-Tientsin region have done.
Joint CostumNatinnelist administration set up in Peiping.
FU too- s agents accepted terms of surrender for Peiping which will
facilitate a gradual and orderly assumption of power by the Conmunists
and which involve the cooperation of Nationalist military and civilian
officials during the transitional period. Another provision of this
acceptance is the future inclusion into the Communist forces of all
Nationalist troops in Peiping. Probably sone of the peace-makers will
be given at least temporary roles in the Communist administration.
Meanwhile, Marshal LI Chi-shen and other dissidents who reportedly
have boon conferring with Communist representatives at Shihchiachuang,
south of Peiping, issued a statement, broadcast over the Conmunist
radio, which denounced Nationalist peace overtures and otherwise
adhered closely to recent Communist propaganda lines. Marshal LI 'a
Kuomintang Revolutionary Committee may serve as a vehicle for admitting
a limited number of Nuomintang members acceptable to the Conmunists
into the future Communist-doninated coalition government.
Communists view CHIANG as _principal enemy Chinese Columnist
broadcaata-have denounced CHIANG'S 4retirement" as a tactical maneuver
inspired by the US and have accused the US and the Kuomintang of
plotting to build up South China and Formosa as bases from which "to
destroy the revolution." The Communists are genuinely concerned
over CHIANG's prospects, with US assistance, for delaying total
surrender in China.
The Communists have made clear that realisation of MAO Tse-tung's
eight-point program is their aims the presence of specific individuals
ODOILET
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on their lilt of war oriminals" is the only point susceptible to
modificatiou. As bargaining points in his favor, Acting President
LI will claim both control over remaining Natimallat forces and
international Status as thelegal National Government of China. It
is doubtful that Ll's government really has suoh control or such status.
MAO'. Insistence upon the "reorganisation* of all Nationalist Armies
is likely to split Ll's government sharply into two groups, with only
those who control no significant military forces favoring settlesent.
The other group can hold out temporarily in South and west China,
and me/ at any time Join forces with CHIANG Itai-shek upon his return
from "retirement."
The Commudsts are well aware that the Generalissimo is playing
for UAL, Thus, while the Communists will accept with pleasure what-
ever concessions are offered them by the ineffectual government in
Natddiig, their principal enemy is and will remain CHIANG Nai-sheks
who will not compromise with the Communists and who will continue
to be a serious obstacle to the realisation of the Communist eine
as long as he retains any vestige of military or political authority.
Recall of Soviet Ambassador iaplies _policy change. A change in
Soviet policy in China may be indicated by the recall of Soviet
Ambassador B. V. Roshohin. Gen. Rostzthia, former Military Attache,
was appointed Ambassador in February 1948 after conferences in Mooccw.
The USSR apparently concluded that the US program of aid to China,
announced at that time, was certain to be a failure and t herefore
that the Chinese Government night well accept a Soviet offer to mediate
in the civil war which Roshchin had already advanced informally.
Since Communist successes throughout 1948 made Soviet mediation either
unnecessary from the Soviet viewpoint or undesirable from the Chinese
Communist viewpoint, the USSR recently declined the National Govern-
merit?. invitation to nediate. Roshohin has again been fuelled to
Moscow, and Soviet affairs in Nanking will again be entrusted to
a Charge d*Affairs who presumably will be unable to ccamit the USSR
to a course of action in the absence of an Ambassador. Roshchinis
contacts and operations for the past several years have been with
the t-hinese Nationalists rather than with the Communists. It is
therefore quite possible that Roshohin will not return as Ambassador.
GINDEMEAFED
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jr=14,141$AballiTttlb iiMpatpuserte ? theon ttl2anilitary Attache
*meant eso
onsonned over the possibilitp of foreign agents tasting
the He states that civil and military intelligens *genies
are stringent restriction ever the incoming stateless Shanghai
?thane eha are being parented temporary asylum in the Philippines.
assort* measaree adopted by Philippine offieials may also be inspired by
resent reports that Chinese Commiste are being smuggled into the Phil-
ippines, Col. Nereus V Aegyastin, shier of a gra* of special agents
*United to President Idrinotn office, reeently raportod that sae 40
Chinese?including a subsr of Cormendate, smugglers, and Nationalist ?
deserters?have entered Zamboanga Province on the southern Philippine
island of Mindanao. Mho* there are probably few actual Communist
entries into the Rtilippines at present, greater Infiltration is possible
in view el (1) the Philippine Naval Patrol' $ inabilitp to guard the long
Philippine coastline amainst Iniggling activities and illegal entry; and
(2) ineffisiott end corrupt administration of the Philippine immigration
Eft
ela
ft.euist= foreign loans. It is becalming increasingly evident *13*
that Burmis
diffloWitiiis are steadily undermining the countryte
financial stability. Net only is the Government burdened with homy mili-
tary expenditures, but the various insarrections are seriously interfering
eith excorts the operations of Government-owned utilities and the collection
of taxes. In addition to Government efforts to deal with the critical fi-
mamba situation by cutting cost-of-thing allowances to Govenmeent workers
and promulgeting an *austerity program*, foreign financial assistance is
being sought. The Infermation Minister has requested Burmese newspaper
editors to ton daan their attacks upon *Anee-American imperialists and
bloodsucking capitalists* in order to avoid antagonising prospective leaders.
India and the Mr are the most likely nurses of loans becauselbsunts rice
is of peat importance to both. India needs all the rice it can get for
its own use and the TIN needs rice for the food-deficit areas of the Par
particularly in Malaya, which produces a large amount of dollar ex-
change. Then! is reported ready to loan Burma 200 million rupees (about
$67 million.) It is expeeted that a request will be made of India. Such
loans, however, mill*onlyimrre a temporary effect until law and order are
restored, and offer little Freepost at fundamentally improviswBurmals
deteriorating *comma. The Burmese Government is not believed capable of
enforcing copprehenstve austerity, or checking inflationary conditions.
The reduction of governmental allowances ney lead to strikes by Government
work4re which will farther curtail the Governments* capacity to function
effectively.
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4L.A.
OffewarrA stodiekantimCommonlet meesvres. Although the Siamese
Govervnieni amuses no definite -antl-aommadat I:regress Premier Phibel
indleated at a press eanferenee last leek that the government is examin-
ing measares to combat Coniennism. The Phibul government is aware that
Commies is eonfined chiefly to Sients large Chinese minority which
dominates the labor fore* and the mercantile class. The government is,
therefore primarily concerned with the nrdblen of limiting Chinese con-
trol of labor unions and the reservation of certain occupations to
Siamese nationals. Furthermore, in an effort to remove possible causes
for the erread of Commnnism among Siam's overwhelmingly agrarian papilla-
Lion, the government is studyihg the advisability of reducing foreign
land ownership and the possibility of Increasing cooperative land-holdings.
At nresent, Siam has a promise of limited military aid from the UK
and, in addition, is making strong overtures to the US for military and
ergonomic assistance as a means of withstanding Communism. Desnite the
awns:vat anti-Communism of the present regime, however, the Siamese are
capable of making the adjustments necessary for dealing with a Chinese
Common/et government recognised by world powers. This would be entirely
consistent with Siam's past history of opnortunistio adaptation to po-
litical developments elsewhere in Asia.
logegemill.1111.11111T
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?111.?
NM= UI. =OM Cr MaSTAR 11111)114 EilD ESTIMATES
1100=10 POOMPICIMII IJU FOR 1949.50
SUM!
Ike egneelidatien Mansheria under Chinese Ommumnist sontrol is or
111130, Idedrioesse be* to the Cast pesitiat in Chins and to Far
Ilasters The relateratias atMak4sses inanstriee with the agri-
eultsrel hintorland will psndt espended output, and restoration of the
esenamintiene gems will ?sablA the Coummists to mobilise surplus food
and indestrial raw materials for nee in China and for export abroad.
nada* Commist omatrol, Manehuria may in the next two years re-emerge as an
important faster in Par Masten trade, despite political factors whit& may
affect the quantity and direction at Manehurian trade.
Prospective Produatint
Milled political "entre' and restored oossamisations will enable the
Ocemunisim both to realise greater returns from hhachuria's agrioultural
'Impinges and to exploit industrial raw material recourses on a considerably
increased seal". Light industri, of *Joh the most important is textile
produstion will be stimulated by the return of pesos to Manohuria. Even
with a sublitantially isereased output of oetten textiles, however, the ?
local demand adn not be sat. The heavy industries, chiefly iron and steel,
built by the Japanese in Minebaria, will probably remain largely inoperative
until the smohinery needed for their rehabilitation can be inported.
Prospective Everts
Increased output of Industrial raw sateriala and agrisultural products
would have an immediate effect on trade in the Par last. Beoange of the
serious deterioration of industrial plants, the lianshurian eocoxtry imumot
now absorb all the ram 'tutorials it is sayable of produsing. Yet Manchuria's
used of maohivery for industrial rehabilitation and essential oonsumers,
goods gives her a strong incentice to prelims more than she can 00311111100 at
hake, in order to market these exportable surpluses.
In the next two imam Manehuria should be able to produce a surplus of
three million tons or grain and soybeans for foreign meglosts? 5.4 million
tons of ooal, 500.000 tons of iron ore. 400,000 tone of salt, and unestbaated
quantities or lumber, magnesite and molibilesma.
"Sfelitair
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militagifir
Prospoetive Malvin
The reetoratios of *Iron* laransparstion to the major ports in the
moth 'dal greatly enlarge the potential eastot tor linsehuria *sports.
The indesirial shies of Werth China would Import Maneberiaa grain. theme
will be a steady world demand tor itaaehorisn vegetable oil and some
ninerele. Mita tree pelilieal oeseiderations, Vie Chinese Party
would tied a naterel earbet in on for Manchurdass surplus et soybean's
eating seal, salt, and iron ore. aspen is a potential supplier of those
eapital and osseuner irpods i.k Manahuria mods.
ToWfts# dimeideratiel,
?
lbetunribrahnrisos export potential will be exchanged in the most
advantageous nerhets delude largely= whether political considerations
determine eesamdo volley. the .y be expected to influence decisions
or the Chinese Ommensist Party regardinglianoburian trade, both by virture
of Streit* ideological attbdOgraltb the Chimes Communist Party and by the
OSSN's share in oontrol of the 'sportiest port of Dairen and the Manchurian
railroad systole.
Tee polities% eonsiderations may prevent the export of Manohuriale
remeateriel surpluses to areas(nxdt as Japan) wbioh will give the Communist*
the greatest return. Pirate both the USSR and Its Chinese Communists nay
agree that experts contributing significantly to Japan's eoonomio recovery
and war potmetial would be undesirable. &monde the example of Eastern '
Suropean satellites indite'ss that the *MR, for its own security porpoise,
may vell *Not to the industrial restoration otanshuria, through szolane
of merman:isle for feetory machinery.
In contrast, three eensiderations eneverage ilanohurian trade with
nos-Soviet eouetries. First, from ihe Chinese Communist viewpoint, there
is little hope for may industrial rehabilitation isiManshuris except
through trade vith ?pantries like Japan that carkprovide the required capital
goods in return, Second, Russia would share in capital goods imported from
Japans *Joh would benefit the Soviet Far Oast economise well as strengthen
the Chinese Communist soonany in Manchuria. Third, a large part of Manchuria's
potential export oommoditios would be only of sarginal significances to Soviet
areas.
It maybe concluded, that although economic forees will promote a
substantial amount of trade between Manohuria and countries outside the Soviet
Far Eastern Woo political ()consideration vIll keep such trade well balm
its potential =Leas during the next fey years.
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