INTELLIGENCE HIGHLIGHTS NO. 34 5 January - 11 January 1949

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01082A000100020027-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 16
• Document Creation Date: December 12, 2016
• Document Release Date: June 13, 2001
• Sequence Number: 27
• Publication Date: January 11, 1949
• Content Type: PERRPT

A-RDP79-01082A000100020027-9
orrIct cv WORTS AND NNTINLINN
CUTRAL INTELLIOESCE AGMICY
NOTICE: This doom:Int is a working paper. NOT in
Win Tal CIA issuance, and has not necessarily been
coordinated with other ORE producing oomponents.
It represents, current thinking by one group of,
specialists in CIA.- and is 'designed for use by
others engaged on similar or ovesrlapping atudieit,,
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 disseminationo' .
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OCI.IMENTNO
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S ET
OFFICIO CIA WORTS AND ESTIMATES, CIL
FAR EA8T,4ACIFI0 BRANCH
INITIZIONNOR HIGHLIGHTS VO. 34
5 January - 21 January 1949
SECTION I. 3IMMARY OF FAR BAST TRENDS AND DENZIOPMENT8
The Asian Conference which is scheduled to convene in India on
20 January to discuss the Indonesian situstime is expeeted to become an
anti..00lanial rally (page 3).
a
8 ern ouna on -it)? po o es
the Allied Counoil for Japan (on sdlitary revival) were rebuffed. However,
similar Soviet propaganda efforts will continue (Me 5).
In Worth Rorea an agreement to build naval bases for the USSR is
reported (page 5) :nd an uprising of dissidents is soheduled for mid..January
(page 6). South Korea's President Rhee will probably dump Prime Minister
Lee Hum &Mk, despite official denials. A. "suitable" replacement maybe the
first step towards gaining Rim Hoo's support of the Government (page 8).
Mosnehile, US observers report that the Coast Guard must substantially
strengthened in order to halt smuggling of rim out of Korea. (page 7).
This weekethe Communists warned rqTso-3,00 troops to surrender or die
and then resumed their military operations, assaulting Tientsin in the north
and wiping out the remnants of TU TU-ming's forces in Central China (page
8 ). Meanwhile, the Communist reaffirmed their refusal to oompromise with
the Kuomintang (page 8) and CHIANP Kai-shek's regime called for four-power
mediation endued* plans for flight to Tainan (page 9).
Philippine President Quirino is considering a trip to the US (page 11).
Refugees now arriving in the Philippines from China 411 be housed at ,former
US naval base; the Philippine Government is likely to request,* assistance
in order to maintain them (papal).
The marginal notations used in sucoeeding sections of this Weekly
("A", "B" or "0") indicate the importance of the items in BAS opinion
with "A" representing the most ipportunto
SEC
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tJEcrLnm
The learner* of lame in Burma law precipitate mideepread comma
warfare (pay 12).
In elm the Meal Oovernaent continues in its trend toward economic
natimmlisee (pewit ).
gifortrearisTrma
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.3.
SECTION II. DEVEIDPMSNTS IN SPECIFIED AREAS
ONNERAL
Asian Conference. *Ind to become an anti-oolonial rail
The India-sponsored Asian Conference is now scheduled to convene to
consider the Indonesian queAtion in New Delhi on 20 January. Although
enthusiastioally welcomed by nearly all countries involved, there is no
strong indication that the conference will produce any immediate threats
to Dutch plans in Indonesia. Fifteen countries (Pakistan, Egypt, Iebanon, -
Syria, Saudi Arabia, Iraq, Trans-Jordan, lime Burma, Philippines, Australia,
NOw Zealand, Afghanistan, Iran, and Ceylon) have accepted Nehrues invitation
to attend the conference. Siam and Turkey have refused attendance an the
grounds that the problem can best be handled in the UN. Bo answer has yet
been received tram Ethiopia, -ohne China is sending only an observer. Since
the *deference wee called hurriedly, it is doubtful whether any clear-out?
carefully considered agenda will bepresentedtothe delegates. The confer-
ence is likely to recommend several measures--including economic sanctions--
desigeed to hamper the Dela. However, the denial of airfields and ports
in India, Pakistan. Ceylon and Burma to the Dutch?already in effect--
appears to be the most effective and feasible sanction at the moment. Material
or military aid may be proposed. Such aid, even if it could be afforded and
transported to Indonesia by the countries concerned, would be countered by
the Dutch blockade and, if necessary, by Dutch military action. There has
been considerable speculation about the emergence of a strong continuing Asian
blocs, but divergence of intereste among the oountries involved, and their
previously demonstrated coolness to Indian Leadership and the absence of
sufficient means of enforoement will limit such & development in the immediate
future
The (=Parolees may go so far as to draft a plan for Indonesian independ-
ence to be forwarded to the Security Council* In any event, it is expected
that the conference will develop into a general anti-oolonial rally. Despite
vigorous VS efforts to clarify its position on the Indonesian question which
have met with some success, the US will not escape considerable criticism on
the grounds that it indireotly supported Dutch oolonial interests. The ill
will engendered mill make it more difficult for the US to maintain a favor-
able position in Asia. It is not expected that there will be any friendly
move toward the USSR an the part of the conference meMbers. However, any
serious cleavage between ABU and the Nest and the development of a situation
favorable to Soviet propaganda will be thoroughly exploited by the USSR.
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JAPAN (Cont.)
The USSRle intensifying pro-
gram vis-a-vis J.psn ma sed within the past week before the Per
Eastern Consission (7RO) and the 1111ted Council for Japan (ACI). Ott 6
January, the FRC in closed session at Washington voted down by an over.
ehelning majority the SSWa resolution to condemn the Japanese Govern-
ment's room* 1sti prddbit.tag strikes and collective bensining by
goverment markers. USSR Ambassador Panyttekkin promptly produced a pre?
pared statement censuring other nations for approving these ilanti?deno-
cratioN monsaree. Other nO represestatives indicated their vote ems
not eo such an endorsement of current labor legislation as a rejection
or Soviet tactics.
In view of the public censuring of the USSR by the other 10 webers
of the FRO last December for breaking the secrecy rules governiog their
proceedings, Panyushkin's immediate release to the press of his oondem-
nation of the me aiitision is noteworthy and further indicates that the
USSR's tactic eas primarily propaganda.
On 4 January at the ACI meting in Tokyo, General Derevyanko, Soviet
seeher, charged that the US is permitting revival of the Apeman Army
througl the expansion and militarization of the present police establish-
ment. Point by point, VS member Sebald refuted the Soviet charges,
Uharacterised themes propaganda atdadded that no army could be organized
on such a decentralised framework as the japenese palm system now
possesses . .
At the international level, Soviet policy toverds Japan, despite
rebuffs, continues to call for propaganda which labels the US as a
'warmongers and is intended to embarrass Cecupation policy. (See
Weekly 10-16 November.)
ISM
tint indiontion Illat the MR intends to maintain naval bases in
The terms of a treaty, reportedly con-
cluded by Win 11 Sung with the Soviet Union provide that North Sorsa
'will render support to the Soviet Pacific fleet by furnishing naval
team. Construction work necessary for the development of port facili-
ties at Chongjin, Wonsan and Tongchung Bay (all on the east coast) is
expected to begin during larch 1%9, using Korean labor ander the
direction of Soviet engineers. Propaganda will be issued in advance of
construction work to the effect that the Soviet Dam is helping the
Korean people develop their harbors.
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Igui (Cont.)
?regaled revollts in tiortbi Korea. itvolvine armed dissidents of the
Peoolets Arey Coast Guard in Hwanehae Province. are sphedule4 to_preak
put in mid-January, according to a detailed operational plan recently
seen by a US observer. (See BAB, 10-16 November 194E). According to
the plan, successful, simultaneous attacks on public installations in
Sardwon, Chearyong and Haeju (NE of 38th parallel), coordinated with
support from a disaffected Coast Guard vessel that will move from
Chinnampo to Haeju, is to be followed by establishment of guerrilla
headquarters in the mountains near Haeju and Hwangju. According to a
Korean source, a single direct bid by these dissidents for South Korean
support was turned down by Lee Bum Suk, Prime Minister of South Korea
on 1 January 1949. Lee decided, however, to send an observer When told
that the plans would proceed in any case.
It is certain that dissatisfaction in North Korea exists and is
increasing, Soviet withdrawal may afford dissident elements the oppor-
tunity to organise and expand. An uprising at this time, however, has
only a meager chance for success against the tight police control which
has been established In North Korea. A disturbance in North Korea so
close upon the heels of Soviet troop evacuation would be of the highest
propaganda value to South Korea but would also aggravate an already
sensitive situation along the 38th parallel.
aktnaLglintailikalz. President Mee has publicly refuted rumors of
an impending shuffle of his cabinet and has branded as "groundless talk"
reports of a rift between him and Prime Minister Lee Bum Suk. Despite
Rhos's denial, he probably will make additional cabinet changes in-
cluding the removal of Lee who has built a strong personal following
among Korean youth in opposition to Rheels plans to unite all rightist
youth in a "non-political nation defending" organization under his own
leadership.
Rhee may appoint as Prime Minister a personal friend and follower
such as Shin Suk roo or Shin Ik Hi, However, more probably Rhee will
effect a Cabinet shuffle to meet the minimum demands of the Assembly's
uneasy coalition of rightist and moderate factions which has the cap-
ability of curbing Rhea's broad constitutional powers. They are urging-
a rapproachment between Rhee and the Kim Koo-Kim Kiusic political elements
in order to increase popular support of the Republic. It can be pre-
sumed that Kim Koo now is prepared to swing his considerable prestige
and following behind the Government if he is offered a high position and
his action is not represented as a surrender to Rhes. The appointment of
Cho So Ana, Lee Chung Chun, or Kim Sung Soo as Prime Minister would mark
the first step by Rhee in effecting eventual collaboration with Kim Koo
and Kim Kinzie.
olielerrir
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coast Ourei ineffective. US Special Representative leccio is concerned
over the under-developed status at the Noreen Coast Otard (Navy). This
armlet the Korean security fbroes la relatively negleeted and possesses
virtually no vessels or equipment. Due to the Ooast Guard's inability
to patrol the long coast line effectively, large quantities of rift are
being smuggled out to Japan and North China, jeopardising the rim pro-
gram and the relatively favorable food situation. In addition, sea-
borne smuggling trade with North Korea and North China is an important
source of revenue for Communists in Seuth Korea. Although it would to
impossible to stop all smuggling, an effective Coast Ward equipped
with suitable small craft and aw4lia:7 equipment could reduce it to a
TQflDT
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CHINA
Communists issue ultimatum to YU Tso.yi and resume flattery activity? eie
The Communist North thenai radio has broadcast a meesa,Le, signed by
General LIB Piaci and his political commiasioner, LO Jung-huan to all
Nationalist generals defending North China, earning them that the
Communists are about to launch a general offensive in the area and
calling upon all generals to surrender their forces at once and "escape
the fate of destruction." The Communist radio jeered at their hopes
of assistance from the US or from Nanking, the latter being "too much
occupied loith saving" itself. Pointing out that certain lessons are
to be derived from the fate suffered by the encircled forces at Kelp=
and Bsuchou the broadcast urged all commanders to "follow the example"
of CHENG Tungrkuo, who turned over to the Communists at Changchun?
The radio advised that if "all armstaesets, warehouses, and industrial
and comnunioations equipnent" are transferred intact, the officers
will "be accorded lenient treatment." For the third time the Communists
admitted that FU Tso-yi, while high on their list of war criminals,
could still "atone" for his "past crimes" through the performance of
"meritorious services," defined as the immediate surrender of his
entire force. Following close on the heels of this warning, and undoubtedly
in an effort to assist FU in making up his mind whether to fight or
surrender, the forces of Communist General LIN Piao, after being re-
placed by NUE Jung-chan's columns from Nalgan, moved from the Peiping
encirclement to assist in the assault on Tientsin. The capitulation of
this North China industrial hub is expected in the next few days.
Meanwhile, in Central China, the remnants of TU Yu-ming's encircled
army groups have been wiped out and Communist forces in this area are
moving into position for their drive to the Yangtze?
Chinese Communists reaffirm refusnl to compromise with Kuomintang.
Several broadcasts from Chine CommunistParty fieadeuarters in the
past 10 days have attempted to justify the Communists' rejection of
not only the recent but also any future Nationalist peace proposal.
The broadcasts state that "Chinese reactionaries" and "American imperialists"
have a double program: (a) militarily, "to organize remnants of Kuomintang
military strength...to continue resistance south of the Yangtze and
in distant border provinces..."; and (b) politically, to concoct "peace
plots," and "to organize opposition within the revolutionary camp,"
in order "to halt the revolution or to make it take on a moderate
coloring." (The Communist Flirty asserts that "British and French
imperialists support this policy of American imperialism." The British
have in fact been helpful to the Communists, in affording sanctuary
to a number of its leaders and allies in Hong Kong, and the French
have been inactive in China, but this Communist assertion is useful
now in supporting Soviet foreign policy and will perhaps be useful
sariiiikeT"
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40E401W.?
later in regard to Communist intentions toward Hong Kong and Indo-Chins, )
The Commumiet broadcast* repeat the "war oriminstl" list, state that
"ever/ one of these vicious bandits is inseparable from American
imperialism," and deolnre flatly that the Communists will not compromise
with or show mercy to such persons. The Nationalist pea*, proposal
is regarded as at attempt: (a) "to preserve the interests of the Pour .
ramilleemand American special privileges" and, (b) to pin time for
the Itnomintangibb "stage a oomsback and destroy the revolutioO. 111e
revolution therefore demands "the thorough destruction of all reactionary
!Woes and the expulsion of American aggression."
While these remarks have been attributed by the Com:moist Party
only to its lesser oflioistls end organs, rather than to the Cintrel
Committee, and therefore do not preclude negotiations, they make it
clear that the results of any negotiations would not differ significantly
from the results of a continued Communist military offensive. These
results will probably be: (a) a Communtst-ooutrolled government for
all of China, under a Soviet-style constitution, and open only to
persons willing to accept the dictation of the Communist Party; (b)
the destruction of the Kuomintang as a political party, and the exclusion
from the new government of almost all of its leading figures; (o)
the replacement of the UN by the USSR as the dominant foreign influence
in China, perhaps with a Sino-Soviet military alliance; and. (d) in
time the extension throughout China of the type of society which now
prevails in areas occupied by the Communist..
China's reqoest for four-yower mediation of the oivil martin part ?WI
an effort4,1 the National Government to piny for time and to avoid
direct negotiation with and surrender to the Communists, is yet at
the same time an attempt to meet the growing demands for peace. The Big
Four, however, will probably be reluctant to accept the responsibility
for ending the civil var. !hough made in the name of the National
Government, the mediation request probably reflects in particular the
efforts of a small group in the Government headed by MILANO Nat.-ohm*.
Pressures frotabothwithin and without the Government demanding peace
and CHIANCes retirement have continued to grow to such proportions,
since the Generalissimo's hid at the beginning of the new year for
peace at "his price," that it is unlikely either the people or the
troops can, he persuaded to back a continuation of theenr. Although
earlier, CHIANG has seemed prepared to retire in the near future in
favor of LI Tsung-jen, Communist intransigence in response to the
Generalistinoh peace bid has sharpened his decision to continuo resistance.
CHIANG's apparent change of mind undermines the efforts of the peace-.
seeking *embers of the Government, leaving them for the time being power-
less to act, while CHIANG makes further preparations to continuo
direction of a rump government from Taiwan.
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t_Taiwaextoirdi,NatonalOovernmentstrold. Taiwan's new
Govenic?CHElorWeigi-------------Ntatedinthepressthate will never allow
Taiwan to be invaded by Communist forces or ideologies and that "we
shall endeavor to make Taiwan the main fortress for the rejuvenation
of the Chinese nations" Additional reports indicate that various National
Government assets such as gold bars, factories1 and technicians are
being transferred to the island. Moreover, several thousand Nationalist
troops reportedly have disembarked at Keelung. Privately CHEN has
voiced concern over the problem of rehabilitating railroads and harbors,
perhaps with a view to asking future US aid. Despite the lack of
full international legal sanction for present Chinese control of
Taiwan as well as the prospect that a Nationalist regime there might
not Obtain general. internationalrecognition with mainland China under
a different government, CHIANG Kai-shek apparently hopes to exercise
power in Taiwan indefinitely, continue his fight against the Communists
from that looaleo and eventually attempt restoration of his rule in
China.
Nationalist inflation reaches unparalleled heights. The Chinese
Government is powerless to stop the unprecedented inflation which has
been running wild for three weeks. The Government's resumption of gold
sales at an WequalisedN price approximating the black-market rate was
the only economic measure undertaken last week. Gold is now reported
to be over GT $10,000 per once and the US dollar sells for more than
GT $200 on the black- market. The traditional settlement of debts
before Chinese New Year (January 28) is the only stabilising influence
in China's present rocketing inflation but its effect this year, in
view of the pressure of the upward trona, will probably be small.
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ZEMENI
AttaasePrittdriestates that, warding to recent local press reports,
?sported. seksillerins, trip, to US. The OS Military
President Raisin? will visit the U$ Within the next few months to dim
cuss Philippine rehabilitation and arer-al defame relationships with
the US. The boa press suggests that a possible change in CS defense
Talley may be under *residential% and quotes 'official sonsess as
stating that the Philippines nay reorganise its army to craws with the
shift in US planning.
Philippine officials hate shwa greeting emcees over the Rerablic
strategic Tameability in view of the Mina situation. The US Attache
reports that there are increasing signs that the Philippine Government
desires the closest military relationship with the US. In addition to
real concern over the Philippine defense position President Quirino
probably believes that suoh a trip would have a ehutary effect an his
1949 presidential campaign ? patticularly if he can point to suceess in
obtaining farther US financial aid for rehabilitation and veterans, benefits.
Considerable US assistance will probablf be requested for :ural. ?Bil
in the ridlltofnesv . The US is likely to be for considerable stance
in *stab and maintaining a omp at Milian, Samar (a former US naval
base) for an estimated 6,000 European refugees ? minly Chit* Russians ?
who il1 soon begin arriving Arcot Shanghai. Representatives of the Inter-
national Refugee Ceganination (IRO) are preparing a request to be submitted
to the US Arm, for cam equipment for the refugees who will be permitted to
remain in the Philippims for four maths. Philippine National Defense
Headquarters, while gaming security measures to restrict the refugees to
the designated area, appears to be depending upon ITS agencies in Shanghai
to provide information obtained by screening refugee lists. The US Mili-
tary Attache in Manila anticipate, that the MI Any will be asked to assist
appreciably in establishment of the Samar camp since no usable shelter is
at present available. There rename the further possibility that the US
may be asked to assist in maintaining security in the asap area since it
is likely that Philippine officials don't want to shoulder such a responsi-
bility alone.
BUtNA
Massacre of itate wid Karen-
Burman break--
MI ? , . . i rt . ?
ing paints as a result of the massacre by socialist controlled police levies
of at least 80 Owens attending Christmas Eve services at a village church
in Nonni District in Southern Burma. Undoubtedly there were retaliations.
Karen resistance throughout Burma has becalm increasingly evident, and they
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MLA (continued)
are reported attacking Government fames in some anima with the purpose
of securing additional arms. Although Prime Ylnister Thakin le and
Karen leaders apneer eager to avoid oommunal strife, tetauns are Payable
of controlling their more extremist followers and the Hergui atrocity
may prove to be incident signalling the commencement of openimmlbre.
Unfortunately, the major issue of whether or not the Karma are tole,*
a separate state has not been resolved as both parties remain adamant in
their position regarding the creation of such a state. At the. momma the
Karma are exbremayammlous to present their case to the VIN and foram
governments. leanwhile, the Burmese press continual to accuse wAnglo-
American imperialists* of aiding the Karen.. Per the moment, racial
antagonisms wear greater than political differences with the outbreak
of communal violence promising to be more ferocious and destructive than
any of the politically inspired insurrections now in prowess.
SIAM
Phibul regime continues trend toward economic nationalism. The
Siamese economy, although relatively stable and viable, is following the
1948 political pattern of centralisation through the trend towards in-
creasing controls by the national government. The economic nationalise
of the Phibul regime is exhibited beet by the increased economic and social
restrictions Placed upon the large Chinese minority which is a continuing
source of irritation to the Siamese. Through the medium of allar Veteran's
Organisation, the Phibul regime has attempted to enter many of Siam's
economic activities which are dominated *Chinese. 14oreoverse Siamese
Labor Union was activated under governmental sponsorship in competition
withwith the strong aLd thoroughly Chinese dominated Central Labor Union. The
Phibul government has enlarged its field of economic participation, addition-
ally, by reactivating the Government Purchasing Maven which is currently
expanding its activities. A later indication of this economic trend is
the recent establishment of impart contras, aimed principally at luxury
goods. The Siamese Government apparently considers that excessive foreign
exchange is being dissipated through luxury purchases and has acted in an
effort to conserve foreign exahange to be directed at the purchase of
equipment for more productive purposes. Although not yet imposed, quota
allocations and exchange controls are being consbiered and may be established
to supplement and effectuate the import restrictions. The imposition of
additional exchange controls probably would be strongly resisted by Siam's
business community and would strengthen the reasons for smuggling which is
currently widely practiced.
?mfilleRtElemm*
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SECTION III, DIGEST OF IMPORTANT STUDIES AND ESTIMATES
?
MONETARY UNIFICATION IN COMMUNIST CHINA
I. Present monetary system in Communist China.
Numerous currencies are being circulated in Communist China,
and the fluctuating rates of .exchange among them make their use
cumbersome. Their circulation in rural areas is apparently small,
since silver dollars, grain and other barter goods are preferred.
Consequently, taxes are largely collected in kind by the Communists.
However, taxes are unevenly applied and Communist broadcasts discussing
land reform problems indicate thatthis is a serious problem. Com-
munist banks in North Chinasre independent units and are probably
none too stable since, being agricultural institutions, they do not
have the resources individually to withstand the calamities of fre?
-
quent regional crop failures. Money, banking and taxation policies
? and practices in Conamnistedominated China and Manchuria are almost
completely unknown. Despite the announced establishment of a single
Communist currency for all North China on 1 December, 1948, there
has been. no report of its issuance and the old currencies are still
in use.
II. Obstacles to COmmunist exploitation of the disorganized Nationalist
economy.
Since the decisions of industrialists, businessmen and the Govern-
ment in Nationalist areas are dominated by phort-run considerations,
there has been little incentive to invest even in necessary factory
repairs and upkeep. The result has been a continual contraction of
industrial facilities. Central direction of industry cannot in
practice be applied. For example, even a once efficient Government
organization like the National Resources .Commission has so changed in
character that it is now composed of disconnected and competing units.
Moneyed people in Nationalist China have engaged chiefly in such
unproductive enterprises as speculation, smuggling and money dealing.
The Government's tax machinery has largely broken down due to confusion
among the numerous Government agencies empowered to collect taxes,
to the physical inability of the Government to collect taxes
outlying regions and to widespread tax evasion. The existing
framework in Nationalist areas is too inefficient and obsolete
Satisfactorily utilised by a successor regime,
III. Communist currency unification.
? ?
OD
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miliifferf
The Communists have recognised the inadequacy of their awn
monetary systems and the undesirability of depending on the Nationalist
financial system. Therefore, in anticipation of gaining control over
all of China the Communiste announced unification of the four currencies
circulating in "liberated" China, and the merger of Conmunist banks
in Chine into the People's Dank of China. The Communist broadcast
stated that the geographical unification of the "liberated* areas
and the resumption of interprovincial conmerce have made necessary
a single currency for all Conmunist Chine. excluding Manchuria. The
Communists state that the new yuan will be backed by "grain, cotton,
cloth" and other commodities rather than by gold and silver." Apparently
no objection to the use of silver dollars will be made, since the
Communists claim there is sufficient silver in Communist areas.
Likewise, *price ceilings" will be unnecessary because goods are
available "in any market at any time."
Monetary unification seems to be a necessity for the Communists
at this time chiefly because they have extended their political
control over such a large area of China. Although the four or five
economic regions throughout *liberated" China have been relatively
independent of one another, continued economic autonomy would
seriously hamper Communist political unification. The Communist
action, in combining the four different currencies, Should help
considerably in integrating the economies of the region and will
especially facilitate interprovincial trade.
In addition to consolidating areas already held, the immediate
establishment of a central monetary system would expedite subsequent
economic control over the large and complex Yangtze Delta and the
Peiping'-Tientsin industrial areas. As large cities come under comr
monist domination the need for central policies will be sharply
evident. Since industries cannot be taxed in kind like tamers, an
adequate monetary system and equitable commercial tax regulations will
be needed. The supplying of Xailan coal to Shanghai exemplifies
the interregional trade needed. The easy flow ofcomneroe is possible
only with a common currency and a unified banking system.
The Communiste want to eliminate the gold yuax, which is a symbol
of the old order. In newly occupied areas they 470 first accepted
it at greatly devalued rates and than rapidly replaced it. Also
it is easy for a-natIonalised banking system to wipe out private
investments by currency manipulation. The Communists are expected
to undertake measures for this purpose.
IV. Acceptance and stability of the new ourrenoy.
The issuance Of the new yuan can be simply accomplishedby
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Accepting it for taxes and selling government-oontrolled commodities
(the Communists usually control the chief staples) in exchange
for it. Nevertheless, there will be an initial desire of the Chinese
people to use metallic money and a deeply ingrained distrust of
*Byplay= currency, no matt= how stable or powerful the supporting
government. This distrust will linger for a long time in rural areas
and will require oonsiderable *edUcation" and snforoement to overcome.
The stability of the currency will be doubtful, for a conservative
honking system cannot be expected tram the Communists in the immediate
future because, while inflation will not consciously be their purpose.
the temptation to finance budget deficits by printing currency will
be great. Currency, manipulation is a popular COmmunist device to
wipe out private investments and savings and, it attempted, will
add to the instability of the currency. On the other hand the
Communists may not be confronted with the excessively high velocity
of currency (typified by the *buying sprees* periodically experienced
in Nationalist cities), since greater political stability can be
expected after the cessation of the civil war.
V. Exclusion of Manchuria.
The =elution of Manchuria from the Conmunist currencytmifioation
is additional evidence of the separation of the North China and
Manchuria governments. and the possible emergence of Manchuria as a'
Soeiet-deminated *People's Republic.' Lack of communications is a
poor pretext as communications with Manchuria are certainly no surge
than overland connections with Shensi and the Northwest. One obvious
reason for the separation would seem to lie in the self-interest of
the regime in Manchuria not to vomit its economic resources to its
much 1)C:corer and disorganised neighbor to the south.
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