INTELLIGENCE HIGHLIGHTS NO. 31 WEEK OF 8 DECEMBER - 14 DECEMBER 1948

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01082A000100020030-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 14
• Document Creation Date: December 9, 2016
• Document Release Date: September 16, 1998
• Sequence Number: 30
• Publication Date: December 14, 1948
• Content Type: PERRPT

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CNIMAL INISIUORM, A RWY
NDTICI* This document is a working paper, HOT an
'YSr1o1 CIL.issuanoe, and has not necessarily been
coordinated with other ORE producing components*
It represents current thinking by one group of
specialists in CIA, and is designed for use by
others engaged on similar or overlapping studies.
2he 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 disseminations
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,ICRRCB KKI IGOS *). 31
s_-3.41948
SECTIOW I. SIWART OF PAR EAST TREN1 AM tiEMMUNTs
The fourth bsbsion of ECAFE has boon exploited an by the Soviets in
an attmmpt to alienate Par Eastern countries from the US (pie 3) ?
IN and UN requests for temporary sanctuary for stateless European
refl~Afroma China are meeting with little success (Page a)0
and Siam are considering an anti-communist program for .
25X6A Southeast Asia (page 4).
A passible struggle for political pousr among rightist groups may weaken
the Republic of Korea (page 6). North Korean invasion rumors increase
psychological pressure on South Korea (page a).
In China the battle in the Hsuchou-Pangfou area is entering its final
phase with the Nationalist forces facing compiets defeat (page T). In the
near future Chiang Kai-shek may seek refuge in flight, retire or be forced
from power by a coup, although Vice President Li Tsung-3en would prefer to
succeed to power constitutionally, without resort to force (page 8).
KKatianalists in North China are attempting to setup an autonomous regime'
(page 8). Manchuria may be accorded a speoial status by the Communists.
separate from China proper (page 8). Admiral Badger's recent statement
regarding the landing of marines in Shanghai may have unfortunate consequences
for US interests (page i0)a
The Republic of Indonesia is attempting to muster external and internal
support for resistance against the Dutch (page 11) a
In succeeding sections of this Weekly, the following marginal notation is
used,
(1) or "C" --importanoe in BfrE'a opinion, of the item,
with "A" representing the most important ones.
ET
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SY (continued)
In Burma, Karen-Burma an1aosit7 is being fanned by insinuations in
the Burmese press that British and possibly American. are clandestinely
arming the Karene (page uI)e
In Mal*ya, small bands of terrorists are reported to have begun
slashing rubber trees (page 12).
In the Philippines the overaesent claims that it has broken dissident
25XA4iotanee in Central Luzon (page 22) 0
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BSCTION II. D V WPMENTS 111 8PSCYFIM AREAS
Soviets agmin seek to Mb rrass US in 19CAFE session
The fourth session of UN.Roonowio Commission for Asia and the Par Burt,
which adjourned 11 December to reoonvane in Singapore next fall, has again
been exploited by the Soviets in an attempt to alimoate Far Eastern ooantries
from the W. The Soviet stratesy was clearly indicated by the Soviet delega-
tion's consistent support of the request that the Indonesian Republic's
delegation be seated and by Soviet attacks on the industrial development and
*cosooio survey reprarte as imperialist attempts to prolong domination of Asia.
Soviet stress on industrial development of the area may have been indirect
encouragement to Far Eastern countries to seek a Marshall Plan for Asia. A
proposal for such an aid plan was again rejected by the QS.
Despite Soviet ability to oapitalise on differences in viewpoint between
the Bast and Wiest, the conference finale provided a propaganda defeat for
the USSR when an amendment to a resolution on the import of capital, implying
that the US imposed political and military conditions for aid, was soundly
defeated in the plenary session of 12 December. Aevorthelesa, US refusal to
oonsider financial omaaitments for Asian rehabilitation and US support of the
Dutch in opposing the seating of the Indonesian Republic's delegation will
probably continue to be vulnerable points of attack in the Far Daet. A
Saigon press editorial has already hailed ECAP 's admission of the Republican
delegation as an important step in the fight of subject peoples for independence.
The editorial, noting 1xS-Dutch opposition, emphasised that the t8 block had
been broken up and that ECAFE'a 8 - 2 vote to seat the Republic's delegation
represented the union of,Eaat vs. Nest.
Stateless refugees in China con8tituto serious
him
"!L-$"
A IE attempt, in cooperation with the International Refugee Organisation
(IR0), to facilitate the evacuation from Shanghai of 15,000 stateless
European refugees, is meeting limited success. The requests for temporary
sanctuary are being received with nixed reaction by Far Eastern governments.
Despite an IRO commitment to provide interim care and maintenance of evacuees
pending permanent resettlement, several governments are reluctant, by reason
of food and housing shortages, as well as political considerations, to offer
temporary refuge. The refugees are 8,000 White Russians, limited numbers of
Halts and Poles and 5,000 Jews, who have been offered Israeli vtsaA.
Although the Siamese have not yet issued an official statement, the
Premier recently expressed his personal opinion in the press that Siam is not
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!E t (0mtinued)
ready to receive refugees. The Siamese especially fear the probable establish-
rat of a precedent which would be used by China to gain admission to Sian
for severed thousand Chineseo President Quirino reportedly has indicated that
!hilippisrs will offer refuge to nationals of friendly Gowa Ties; this
2~,.._Z den China, but it is probable that Chinese refugees will be limited to
The it. Russian, Baltic and Polish groups are in particular danger
sins unless their evacuation is accomplished, they may face forcible repatri-
ation to former European hosslands. Such a development mirht mll constitute
a serious blow to the prestige of the t$ and the UA particularly among peoples
in Soviet-controlled areas
Siam consider anti.cce nmist program for Southeast Asia
Apprehension over the possible spread of oa 6 as a result, or
Chinese oasmanist daaination of China is leadi together
with aim, to effect a oomncns means of oaabatting oamwaist activities in
Southeast Asia. ~u Ch a formal SEA defense bloc is not envisaged, prelimi-
nary disoussioua'~ i tang action by France and Britain reportedly have
been ini.tiatedo have approached Siam for increased
cooperation in controlling Indochinese and Valayan2*?b6#dents who operate
from and find refuge in Siamese border provinces. and
8Sam arse on joint anti-oa nunist measures, it is possible that the exclusion
of other SEA states in the consideration of this problem may result in
increased antipathy in SBA for Western influence and domination0
BSI'
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25X6A
mar
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President MM maw be forced to rsorMUs his verryM,Ua The favoraole
ON decision on the legal status of the Republic of Korea say procipitata a
pacer struggle between rightist elements of the Natiova1 Assembly and
President Kilse, suspended during the fall in order to present a facade of
gAVertmeatal strength and unity pending UN recognition of the goverment,
r" powerful Kiankook Democratic Party and other AsseabL factions, motivated
b? sincere desires to raise the caliber of Cabinet officials and by desires
for self-aggrandisement, bays plans to reduco the powerful executive to a
figuft-head by eotablishiag a responsible cabinet and Prime Minister through
ocast1tattgrol amendment. Due, however, to the inability of the various
political. factions to agree on leadership and a division of spoils, Rhee
should be able to maintain his present powers bar effecting minor changes in
his government and by the judicious award of favors to key members of the
rightist opposition.
Mores that reduced the broad executive powers now exercised auto-
aratioally by Rhee and reforms that raided the caliber of government
personnel would increase the strength of the government in the long run.
Hat an acute political struggle at this time within the various rightist
factions would seriously impair the ability of the government to cope with
internal and external communist threats to its existence..
Oct.) aowiver, the North Koreans have the capability of invasion and an
increasing volume of invasion reports supports the belief that a North
lorsan People's Army (PA) consolidation is occurring near the 38th parallel.
It is to be noted that the North Koreans will probably consider the 30 degy
period prior to the arrival of the new temporary commission for Korea set
up under the 12 December UN resolution as the most opportune time for an
attack, Nevertheless, a characteristic of recent invasion threats is the
selection of dates after US troops are expected to have withdrawn from Korea
clan conditions in South Korea are expected to be more oropitioua and it is
believed that invasion threats gill continue to be used primarily to inten-
sify the psychological pressure on South Korea.
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CHINA
Decisive Political developments in Nankin nay occur in the
immediate ture, as the realization spreads that the Government has
lost the battle in Central China and is almost completely stripped
of its military resources. CHIANG Kai-shek may withdraw voluntarily
in favor of Vice President LI Toung-jen. It would be more characteristic
of him: 1) stubbornly to continue resistance at Nanking to the and,
in which case Nationalist leaders probably would try to force him
from power, or 2) at the last moment to withdraw to South China without
relinquishing hie authority, in which case Nationalist leaders who
remained at Nanking would be in an unfavorable situation to constitute
themselves as a successor governments
Despondency and confusion pervade Nankin military offices as
certain military defeat looms nearer and the Chinese public, long fed
a diet of "victories" and "strategic withdrawals", must necessarily
soon be confronted with the stark foot that shattering reverses were
suffered by the Nationalists south of Hsuehou. These reverses will
very likely be a defeat from which the Nationalist Army and the General-
issimo will be unable to rally. The position of the encircled Nationalist
forces southwest of Hsuchou and west of Suhnien can be regarded as
hopeless; their eradication only a matter of a few days. Communist
radio claims, that the 12th Army Group and 30 regiments of TU'a three
armpr groups have already been "totally annihilated", tare been largely
substantiated by other reports. Upon the final eradication of these
foreca, the Pangfou Nationalists are expected to attempt zo withdraw
south of the Yangtze River, but it is doubtful whether many of these
forces can be salvaged for the defense of Nanking, especially in view
of the fact that the Communists have already launched movements to
encircle these units.
In addition, the Nationalist position in North China is deteriorating
rapidly, as the Communists press oioser to Peiping. They are now in
Chihsien, about 35 miles to the south, in Shunyi about 30 miles to
the northeast, and are active along the Peiping-Kalgan railway.
Rail communication between the latter two points is precarious with
strong Communist units disposed on both flanks of the line. Although
the precise objectives of the Communists, or for than matter of the
Nationalists, are somewhat obscure, the Nationalists have apparently
ordered the evacuation of Kalgan, but on whose authority is unclear,
Officials of the Kailan coal mines state that FU Tso-yi has evacuated
Tangshan and the mine area, and that the Communists have occupied
them. This leaves Tientsin with only enough coal to operate essential
services for 2 months. Because FU's forces contain a large number
of Central Government units, some of whom have openly stated that they
will not fight the Communists, FU can have complete faith in only his
awn Suiyuaneae units, or considerably less than half his total strength.
WBW
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it
Ear removal of CHIANG Kai- sbek from the Government is anticipated' "8*
by . political ser to ice esid rtt L ?sung-jen.
According to KAN, CHIANG has indicated hew ill retire if no increased
US aid is forthcoming and when the Cover,, it's troops in Last China
are defeated. However, if CHIANG is determined to continue in power,
UN reports that PAI Chuang-hsi and FU Teo-yi, along with other generals
and political leasers, will resort to a coup d'etat it an effort to
salvage something. LI ?sung-fen has endeavored to forestall a coup
inasmuch as he hopes to assume office legally without resort to force,
XAN expsots the crisis to be reached in the next week or two, and
indicates that LI plans to negotiate with the Co:namnnists when he
assumes office,
IAN Chieh-hou is usually considered to be a reliable source and
is in a key position to reflect LI Tsung-jen'a current views. It is
possible that CHIANG may retire when the aforesaid conditions materialise;
at the present, however, he appears determined to continue to resist
efforts to displace him. On the other hand, while a coup is also
possible, it is equally possible that CHIANG will flee from Nanking
at the last moment and attempt to establish a government in South China.
Nationalist North China makes political preparations for various new
eventualities. Due to the National Goverrment'a increasing inability
motion effectively in the area and to local pressures concerned
either with efforts to mobilize resistance to the Comtaunists or as
an alternative to negotiate with Communist representatives, a strong
movement ,toward autonomy has developed recently. An important feature
is the projected creation of a North China Political Council, similar
to that sponsored during the war by the Japanese, which would unify
administrative authority over local officials. Such a council, or
alternatively several departments under General Fit Tan-yi, would
facilitate FU's control of the area. PIT and other North China leaders
may wish to await the political consequences of Nanking's fall in the
hope of allying themselves with a reorganised government able either:
1) to continue resistance or 2) to negotiate a peace settlement with
the Communists. However, they also face the prospect of having to
depend on themselves, Should FIT eventually retire into Inner Mongolia,
leaders in North China cities would try to unite their meager political
resources fora separate settlement with the Communists.
Chinese Communists intimates cial statue for Manchuria. The
Chinese Communist press in Dairen has hinted that nchuria will have
a status, under Communist control, apart from the rest of China, and
may even become, like outer Mongolia, a Soviet-dominated "People's
Republic." The paper announces that elections will be held in Manchuria
"before the next springy planting," and that, "after planting, provincial
assemblies will be held... Administrative, legislative, and judicial
branches of the government are all to be under the jurisdiction of the
People's Republic assemblies."
OEM SUT~
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25X6A
The Communist press emphasises that, "under the new democracy," the
Party Haut take a more aggressive role in the govern=-it, "Important
questione...should be discussed democratically and decided by the Party
organisation inside. the government. The Party...should unsure that
its decisions are carried, out by the goverment."
Communists announce unified current for 'liberated' China and
the merger of all Co-'sunist banks into the People's of ina. The
Communist broadcast states that the geographical unification of the
'liberated' areas and the resumption of interprovincial commerce have
made necessary a ain;;le currency for all of Communist China, excluding
Manchuria. The now monetary unit, worth approximately one US cent,
will be backed by "grain, cloth, cotton" and other commodities rather
than by "gold or silver." The broadcast notes that inflation has
reduced the value of Communist currency by 60 times since V-J Day,
as com;*red with a devaluation of 1509000 times in Nationalist currency.
The specific exclusion of Manchuria. on the pretext of poor
ooamunications, is another indication that Manchuria, an area economically
far more stable than the rest of China, will have special status.
Currency and banking unification, in China Proper, will certainly
facilitate political power of the Communists, but its stability will
be doubtful at least until such time as the Communists control and
operate the entire economy of China.
Current Economic Develoments: The Chinese Government`s sales of
gold an silver not only have failed to halt inflation, but have touched
off another "buying spree" which pushed prices up in Shanghai. Open
market prices of gold and silver are well above official prices and
the US dollar reportedly rose to over GY $60 on 13 December. Further.
more, the convertibility policy is rapidly depleting the Nationalists'
specie reserve and will shortly have to be abeindoned or greatly revised,
Industrial stagnation is affecting both Shanghai and Tientsin, and
hundreds of factories in both cities are reported closed, chiefly due
to the shortage of raw materials and power. Tientsin, especially, is
now almost completely blockaded by the Communists. While the fall of
Tangshan, market terminal for the Kailan coal nines, now eliminates
Tientsin's coal supply, Shanghai has not received large Kailan coal
shipments since September but has been increasingly dependent on Taiwan
(Formosa) for its inadequate coal imports. However, Taiwan is an
uncertain coal source since reserves are poor and limited. Isere is,
almost no coal conveniently available elsewhere in the Far East, and
plans to import coal from the US would require months to complete,
besides being exorbitantly expensive.
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"C"
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40 25X6A
Admiralpgs public statement regarding possible landing of
US Marines in han&fu- may have consequences unfavorable to US interests
Reports indicate that Chinese as well as foreign residents now anticipate
a large measure of protection for themselves and that interested
Chinese groups may be impelled to provoke incidents calculated to
bring about or prolong assumption of protective functions by the Marines.
Moreover, the statement has ueen the subject of pointed inquiries by
grenoh and Soviet representatives who apparently are zruch concerned
over US intentions. The USSR, herefore, may decide to land its Soviet
forces in Shanghai, ostensibly to protect its property and its 5,000
quasi-genuino Soviet citizens in Shanghai, but also to remove from
Shanghai a number of Soviet and stateless Russians who have incurred
the displeasure of the Soviet authorities.
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1i DFVFSTA
Re blican countermoves against the Dutch. The Republic of Indonesia "A"
is now attempting to muster external a internal support in order to
strengthen its own political position if the Dutch establish an interim
goverrrmertt for Indonesia composed of non-Republican states and if they
Institute "police action." Republican officials are counting on receiving
aid from India, Pakistan, Burma, Ta3ara, Australia and New Zeal nd. I! the
Dutch eventually use force in restoring law and order in Indonesia, the
Republican Government claims that they will operate as a government-in-exile
from Tndia. Arrangements with India are reported to irwlude Indian action
in the event of war, which would deny the Dutch air landing rights in India
as well as an embargo on shipping.
In Indonesia the Republic has intensified its efforts to win the support
of non-Republican nationalists.. The formation of a Greater Indonesia Union
(PP.) on 10 December indicates a major effort in this direction since the
new group includes individuals prominent in Dutch-soone?red afiates. It is
extremely likely that, evon if the Dutch succeed in setting up an interim
government without the "Penublic, Republican political forces will eventually
assume a dominate nO.Aiitinn in_ r.he now governmen,
Purma's economy, largely based on rice production, would receive another severe
blow because Karens and Purmans are highly intermingled in the best rice lands
of Lower Turma, Furthermore, the communists, who already have attempted to
loit racial antipathies, may be expected to take full advantage of any
Karen Furman :onflict. The greatly increased hardships which would ensue,
as well as the emergence of a communist China, might enable the Burmese
Communists to rise to a dominant position. in Burma's politics.
and if communal violence develops, it will be extremely ferocious and destructive.F
Press ca, ai fans Karen Furman animh ?ties. Karen-Furman animosity "w"
is be intensified by ins uat ons the Burmese press that the British,
and possibly Americans, are clandestinely arming the Karens. '.tang high
Government officials are implicated in this latest development, and same have
o,enly made statements warning against racial strife and referring darkly
to the "stooges of the imperialists" who would incite minorities against the
!'-overn*ent. Strong denials of intervention and requests for explanations by
the Pritish "mbassy and the Karens have had no results. "eanwhile, #urrnans
are becoming increasingly uneasy because of rumors of impending !areas assaults
on racoon, "oulmein and Toungoo. The situation continues highly explosive,
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MA3,AYA
Terrorists re ted e1ashin rubber trees. Small bands of terrorists I'D"
in ?Iala~n_ are ich repor to have egun slashing rubber trees, the effect of is to put the trees out of production for a period of years. This
development may be an indication of British success in preventing terrorists
from operating in relatively large groups. On the other '-,and, it may be
merely an easy method by which the terrorists can decrease Ialaya's rubber
production. In argr case, the prevention of this practice will be an exceed-
ingly difficult undertaking for the British.
PFM
Government claims Constabulary has broken Huk resistance in central Luzon. "B"
.seen re eases out Inter or Secretary R uyut and President `)uirino'a
office announced that the Philipnine Constabulary (PC) drive, which began
after amnesty for the fluke expired in August, has broken Huk resistance in
Central Luzon. According to the ITS I,Iilitary Attache in "anila, both the
Interior Secretary and his Constabulary authorities are in apparent agree-
ment that the Mks are now sufficiently suppressed to warrant reducing PC
operations :o patrolling. (The Constabulary has recently encountered no
Huk bands larger than 50.) As further evidence of the Government's con-
fidence, President :uirino announced 11 December that PC Chief Brig. Gen.
Mariano Castaneda, who has served with the Constabulary for 33 years and
actively directed anti Huk operations, has been appointed Chief of Staff
of the ,r: eo Forces. Col. Alberto Rama, Deputy Chief of Constabulary, who
in said to be more conciliatory toward the Rules, will probably assume the
top PC post.
It In believed that considerable progress has actually been made toward
suppressing the Fluke and that the change in PC tactics has a reasonable chance
of success. Nevertheless, none of the top Huk commanders are known to have
been killed or captured and it is possible that the Ruks may be able to in-
filtrate and regrew in Central Luzon. "oreover, the Constabulary is still
faced with the task of mopping up Iluk remnants who have fled to Lapuna and
Ouezori provinces in southwestern Luzon. No estimates of the number of Nuke
in these provinces are available although 8 VC companies totaling about
1,000 men are reportedly stationed In the region.
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SEC
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