OFFICE OF REPORTS AND ESTIMATES, CIA FAR EAST/PACIFIC BRANCH INTELLIGENCE HIGHLIGHTS NO. 48 15 APRIL - 19 APRIL 1949

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01090A000500020007-8
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 14
• Document Creation Date: December 12, 2016
• Document Release Date: November 1, 1999
• Sequence Number: 7
• Content Type: PERRPT

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OFFICE OF REPORTS AND ESTIMATES, CIA
FAR EAST/PACIFIC BRANCH
INTELLIGENCE HIGHLIGHTS NO, 48
13 April - 19. April l949-
SECTION In SM;TARY OF FAR EAST MENDS AND DEVELOP19E14TS
US considers withdrawing proposal for most-favored-nation treatment for
Japan in view of opposition of major trading nations (p, 2)* Refusal of
foreign financial assistance may force Burmese Government to renew peace
talks with Karene (p, 2).
SCAP refuses Communist dominated labor delegates permission to attend
Moscow labor convention but approves Japanese attendance at Pittsburgh ILO
Conference (po 3)p Japanese Goverrmnt slashes Corununist newsprint allo-
cation (p0 3),, Premier YOSHIDA suggests birth control issue be made
Demooratio.Liberal Party pledge (p,s 3)
Al though the Korean Government is making progress in strengthening the
security forces and eliminating dissident elements, the announcement of US
troop withdrawal. will revive a spirit of defeatism (p. 4),
As the Nationalist-Communist peace negotiations entered their third
week, it became more apparent that an "honorable peace" was not possible and
LI Tsung-jen would have to decide very soon whether to surrender or fight
(po 6)o Cozmaunist political strategy includes third "ultimatum" to LI$s
government (p? 6), and statement of JEN Pi-shih,, top Red Politburo member,
that the new China must go all out for industrialization (p, 7),
Dutch armed forces in Indonesia paradoxically appear to have intensi-
fied their operations against Republican units at same time that Dutch and
Republicans are meeting in Batavia (p,lO)e. Meetings open in congenial
atmosphere hut principal issues remain to be considered (p?10).
Foreign policy pronouncements emphasize that the Philippines is not
neglecting its Asiatic relationships (pgii)a Alleged MacArthur statements
favoring President Quirinoas election cause sharp anti-US reaction (p,,l?),...
Bao Dai still scheduled to return to Indochina on 25 April (aid ll) o
Communist reversals in Australia indicated a decline in Party
Influence (p.,13),
"A" ar ; ?notta t an`~" use ? n sucoee in ; sec ? ons ;'aeesYCly
, B or C) indicate the importance of the items in B/FF. opinion
with "A" representing the most important,
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SECTION I1,. DEVE I.O MENTS IN SPECIFIED AREAS
GENERAL
Prospects for most-favored-nation treatment for Ja n dim-jam-It now appears
likely tha the US proposal for mos =famed-nation trea&ment for Japan
during the period of the occupation Yd 11 not be approved by the nations
currently meeting in connection with the General Agreement on Tariffs and
Trade (GATT). Of the major countries, the DX and Belgium are definitely
opposed, and the French only lukewarm. The opposition of the UK is
eeps,ially important because its position is likely to be followed by the
Dcs4'.-tons, The pressure by business interests in these countries? pay--b` 'cu
laxly the textile industry, .is so strong that it is doubtful that thee
opposition can be overcome at thin time,,
In the absence of most-favored-nation treatment for Japan, some
countries may impose restrictions on Japanese imports if these imports
provide strong competition for indigenous businessmen. Hover9 the
failure of the proposal at this time does not preclude its being raised
at a more auspicious time,, expecially after a single yen exchange rate
has been established.
Burmese Prime Minister visits India and Pakistan---Prime Minister Thakin
v Ws visit to India and Pakistan,, where he sou7ht arms and financial
assistance for Burma in exchange for rice, was largely a failure. Although
the Indian Government may secretly supply a "token quantity" of arms to
Burma as. evidence of goodwill, it informed Nu that it could not advance e.
loan until a peace had been negotiated between the Burmese Government and
the Rarens, The reaction of the Pakistan Government to Nuls.requests is
not known but it was probably even less encouraging than that of India,,
The only positive commitment obtained by Nu raa the promise of both India
and Pakistan to discuss Burma's case informally at the forthcoming Common
wealth Prime Ministers' Conference in London.
Under existing conditions in Burma, financial assist'sanoe is not likely
to increase materially the export of rice, nor are more arms likely to
'ensure a decisive military victory for the Burmese Government over its
numerous antagonists. Nevertheless,, the niaintona.n_ce of a Commonwealth
front which insists upon the restoration of a resonabie degree of stability
as a prerequiste to assistance may force the Burmese Government to renew
its attempts to reach a settlement with the various insurgent groups-
particularly the Karens,
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ra a self sufficie ,,_3 z e A gip, , coat, c aii --An Industrial spec iaa'~ ist _J_ d
assigned to SCAP claims that if certain technical. and administrative ira-
proverents are made,, Japan can be self-Ysufficlent in coking coal. He states
that Illinois soft coals similar to those in Japan have been treated in such
a way that suitable coking coaal has resulted. Should this claim be substan'
tinted, Japan would be relieved of the necessity to import coking coal. for
its steel t ndustry. As a result.. Japan would (1) not be so dependent upon
Communist areas in China for t'he most economical source of coking coal and
(2) save in foreign exchange.. On the other hand, alarm would be created
in those countries which still remember Japa.nas aggressive aims.
Povaaiatorroblem to `be conside edm-~.1 rmed by the meteoric population
rise in population at the rate of l millions a year in Japan since the
and of the war, as a result of an Oriental, birthrate and an Occidental
dent?i rate," Premier YOSHIDA has suggested that the issue of birth control
be made a formil, party pledge for the Democratic Liberals. Further con-
cern'n is indicated by the Cabinet o s decision to sat up a deliberative coup
cii to study the problem of population pressure.
If population control secures legislative recognition, Japan will be
the first Far Eastern coun-try to take such s tops. Japan always h as had a
surplus population (an expansionist factor used effectively by the mile.-
t1irists). Post-war repatriatic>n of approximately six million overseas
Japanese and denial of emigration have made the problem a matter of nat-
ional concern. If the population continues to increase at the present
rate, there is danger of negation of such economic recovery as may be at-
tained.
' & 3 ~ 1llF C Cnmr rra s Rs,~f;CAP has this past week "B"
turned down the petitions of two communist-d6 nated labor federations to
send delegates to the Tenth NTatiosnal Convention of Trade Unions of Soviet
Russia to be held in Moscow on 19 April. The rejection stated that It is
not SCAP policy to authorize Japanese individuals representing only a "segg
mert" of Japan a s labor movement to attend the 10th Trade Union Congress in
vow of the undeveloped state of Japanese labor unions and its consequent
inability appropriately to determ1_ne its attitude towards international
activities.
Last week, however, SCAP granzted four Japanese permission to attent a
meeting of the International Labor Organization in Pittsburgh on 20 Apr?i.'i,
It was pointed out that the ItO is not a national labor organization like
the Moscow conference but a conference of representatives of labor, nan age-
meat and governs ent and Is affil, .ated with the United Nations. The Japan-
ese presumably are technical advisors to the SCAP delegation and not del.
gates, thus complying with Far Eastern Commission directive. The Pittsburgh
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trip is undoubtedly part of the Occupation's democratic orientation policy.
The ILO conference will under the circumstances,, however, provide Soviet
propaganda ems w;.th additional ammunition.
Last week also, the Japanese Government drastically curtailed the fu-
ture printed propaganda output of the Japan Communist Party (JCP) by slash-
ing the Party's newsprint allocation by over two-thirds. The action was
taken _n the proposition that newsprint should be rationed to the press of
the respective parVes on the baste of the votes received by them at the
last general elections,, rather than on the b_sis of present circulation.
The Communists' monthly paper allocation was out from 86,000 to 20,000
pounds. There is reason to believe that the JCP "blackmarketed" a portion
of its newsprint allocation and channeled the proceeds in the party coffers.
The curtailment should have the double effect of hampering party propaganda
and cutting off one of the pipelines leading to the party treasury.
LONA
Comm~,?n ,st st ce t 1 de, n,gam-Korean Ar'my action against rebel bands in the WO
Chiri San and Cheju--do areas and continued arrests of leftist leaders have
decreased Communist activity in southern Korea in recent months. The spe-:
cia]. combat command assigned the task of mopping up the Communist-led rebel
band in the Chini San area. has killed the rebel leader,, Hong Sun Suk,, and
three other important members. At the same time, intelligence officers of
the Korean. Army have arrested South Korea Labor Party leader Lee Chung Up
and 60 other prominent leftists.
Although Communists in southern Korea probably still can provoke local
disturbances when food shortages develop during April and flay,, they probably
cannot threaten seriously the stability of the Republic at this time with-
out large scale assistance from northern Korea.
E bee ponces US tr ooy withc raw der discus io-President Rhee an- aA"
nounced on lf~ April that discussions are underway between representatives
of the Republic of Korea and the US to establish a date in the course of
several months for the w; thdrawa.l from Korea uZ US troops. He said that
withdrawal would be possible because the Korean defense forces are now
rapidly approaching the point at which they can assure security, provided
the Republic is not called upon the face attack from foreign sources (pre"
;a bly meaning other than forces of northern Korea). Rhea stated that
troop withdrawal would not mean a lessening of the US commitment,, but that
he has renewed US assurances of continued economic, military, technical tend
other assistances for the safety and welfare of the Republic of Korea,,
Despite the assurances of continued US support to the.Republic of
Korea, the announcement of impending troop withdrawal may be accepted in
Korea'and the Far East generally as further ev?deuce that the US considers
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the Pacific a secondary zone in the Cold "ar and is not prepared to stand
as firmly against the encroachments of Communism in the Far East as in
Europe. The withdrawal comb=.ned With the fresh impact of Communist pour
that will result from the imminent crossing of the Yangtze, will revive
last fall's spirit of defeatism in Korea and give impetus to those Korean
leaders who advocate "coalition" with the northern Conuwiist regime.
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CHINA
PEACE NhGOTIATIONS
LI must decide soon; surrender or fight-- Although the Nanking
Government has been able to prolong the peace negotiations and apparently
to obtain minor concessions on such issues as that of "war criminals,
its resistance capabilities are diminishing in face of mounting Com-
muuist pressure., Consequently Acting President LI and his political
cohorts may be impelled by their precarious situation to endorse
very soon a settlement offering them no more than temporary nominni.
participation in a Communist-dominated provisional government, or
.face a resumption of a military offensive by the Communists,, In
the latter circumstance; the I:1I-H0 government would probably soon be
replaced by other Nationalist groups which have been less closely
identified with the peace movement,
The Nanking Government's weakness reflects the continued struggle
for power between LI's following and that of CHIANG Kai.-shek,. Despite
some efforts to present an appearance of unity during, the negotiations,
the Nanking and Canton groups disagree an peace terms. Recent state-
ments, by Nationalist groups and Kuomintang bodies in Canton and the
decisions reached by a secret conference of &-vangtung military and
political leaders reflect their opposition to any agreement looking
toward coalition government or facilitating a Communist occupation of
areas south of the Yangtze? Moreover, CHIANG Kai- shek's uninterrupted
direction of top military commanders? his renewed refusal to release
gold reserves, and his continuing interest in Taiwan as evidenced
by T. V. ZSOONG's recent visit to that island indicate his intention
to oppose any "sell-out" peace and to hold hir.self in readiness for
possible resumption of the Presidency. Increasing activities of
.Kuomintang leaders and reports that the Kuomintang Central hxecutive
Committee may be convened in a plenary session at Canton on 5 May,
point to their preoccupation with the outcome of the peace negotiations
as a political turning point and to their preparations for organizing
continued resistance.
Communists deliver third 'lultimaatium"- The Chinese Communist
Party (CGP) has annoi:nced officially that formal peace negotiations
in Peiping will be concluded on 20 April, and that the Nanking govern-
ment,, if it intends to sign the Communist-dictated "peace airoement,"
must sign on that date? The terms of the draft a greement-=> eight
articles and 24 provisionaf?-.amount to the demand that the Nanking
government transfer its political authority to a Communist-controlled
"coalition," order all Nationalist armies to stand by for "reorganization"
by the CCGP,, and assist the Communists to realize such transfer and
"reorganization" in fact as well as on paper; an early step would be an
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unopposed crossing of the Yangtze by CoTwnuraist armies. As previously
noted, Communist aarnii.eo whether opposed or unopposed, vrill probably
cross the Yangtze! in the near future, the CCP is simply giving the
Nanking government a choice of casting its lot with the "coalition"
or attempting to resist it, This ' ire the third "ultimatum" to be given
the Nnrking government by the CCP in the past two weeks? and the Nanking
government will probably have yet another period of grace, for possible
reconsideration, prior to the actual resumption of the military offensive.
However, this is the first occasion on which the Communist deadline
h,.s been publicly announced. Regardless of the outcome of the current
peace talks, the Communists will open negotiations separately with
local Nationalist authorities as the Comaaunist armies rove into South
China.
Communists __62 ell-out for industrialization. Enlarging upon Chair-
man MAO Tae-tung's recent remark that "the wresting of a nation-wide
victory is but the first step," JEN Pi?-shih, fourth-ranking member of
the Politburo of the Chinese Communist .Party (CCP) and the Party's
leading economist, states that the military victory of the COP is
now an accomul.ished fact, and therefore that intensive efforts must
be made toward the industrialization of China. In line with :4A0's
view in 1 ;47 and 1949 that "the ultimate goal of the new democratic
revolution... is to transform an agricultural country into an industrial
country," and. the Central Committee's decision last month that the
Party must shift; its emphasis from work in the countryside to the
rehabilitation and development of urban industry, Jh gives. the goals
of China's industrialization as national defense, economic independence,
a higher standard of living, and a strong Voundati?cn for the future
change to socialism."
The CCP's immediate efforts will include (1) the rapid develop
rent of state-oiw?ned enterprises, through large-scale investment in
-r:l,em of resource~,* and manpower, and (2) the direction of egriculturahs
produce to urban: and thus industrial ends, in order to supply food
and raw materials for the industries, and exports to exchange for nec-
essary rehabilitation imports. JEN claims that China can rehabilitate
its existing industry in three to five years, which is probably true?
His other and more important contention, that China can be industrialized?-
i e;. , that industrial output will tom. ount to 30 or 4e- of the national
income, rather than the present l0%-..ln 10 to 15 years, is very doubt-
ful. Nevertheless, "JEN's speech is si nificant, in that it demonstrates
the CCP's belief that "the long march" to economic victory has begun,
and that state-controlled industries are the most reliable vehicles
for this march.
G o n ress of Chinese New Democratic YOuth League o 'ed in Peip:inf, see
on 10 Aisri 1, The importance of this organi nation in the eyes of` the'
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CCP is attested to by the fact that six of the twelve members of the
CCP Politburo are on the Presidium of the Congress. Delegates to the
Congress are e.aid to represent 189,800 League members; others attending
represent the All-china Federatio.: of Labor, the All-China Democratic
Woman's Federation, the All-China Students' Federation, and the North
Korean Democratic Youth Leaggue.
As the Soviet CP emnp1oys, the Komsomol, so the CCF plans to utilize
the Chinese New Democratic Youth League: as an auxiliary mass organization
to :iobilize the youth for various Party purposes. Politburo member
JEN Pi-shoe, addressing the Congress on 13 April, declared that the
CCP attaches great importance to the estaclishment of the New Democratic
Youth League, in that, in mobilizing the people, emphasis must be laid
on mobilizing youth. The League is to be "a . uni fi ed organization of
youth masses" in which education in Marxism-Leninism is to be carried
out systematically. The social basis of the League will be wider than
that of its predecessors the Young; Communist League; although its main
basis will be young workers, peasants and rtivolutionary intelligentsia,
the League will also unite all. "pro,res;ive youths" of various strata.
Like the Soviet Komsom3l, the Chinese New Democratic Youth League
is envisaged as something more than an ordinary youth organization.
The itomsonolea early activities included the conscription of its
members for fighting the civil war, and the a ssignment of youths to
work in industry and to wage -pol.iticaal campaigns in the villages.
CCP Politburo members addressing the Congress of the New Democratic
Youth League last week declared; that youth must be mocilized to parti-
cipate actively in the military crossing of the Yangtze, and that a youth
league will be formed in the People e s Liberation Army; also that youth
must be mobilized to take pert in the rehabilitation of industry and
agriculture, with youth leagues formed in factories, schools and country-
side, special em-hasis being placed on the cities.
Future Role of _Aircraft in the Chinese Fi~gYrtin~, Some 38 ex- eke
Nationalist bombers, Fighters, transports, and trainers, operational at
the time of acquisition, plus approximately 20 pilots have been added
in the past six months to the Co. monist armed forces, either by capture
or defection. Despite numerous low-value reports of the existance of
a Communist air force, this is the first con..srete informatiop that the
Communists possess operational aircraft and hare the men to fly them.
Up to the present, however, no credible report has ever been received
that these planes have been used in a combat operation. Severe limitations
in air-craft, spareparts, fuel, lubricants., and, trained personnel have
curtailed, and will probably continue to curtail the operation of a
Communist air force. The most critical shorta.;e is the lack of aviation
gas. Although the Communists did capture significant stocks of Nation-
alist aviation fuel these are probably sufficient only for future small
scale ccambat opera ions or transitional training of Communist pilots
in US-type ships; failure to follow the latter course means Communists
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must depend on politically unreliable Nationalist defectors.
The Nationalist air force, in a move to reduce the probasility of
urther defections, brace the isl;.nd's defenses, and keep the air force
out of immediately threatened areas, has transfored some 5/6 of its
tactical aircraft to the island of Taiwan. With only some 100 tactical
era.-'t left on the mainland, the main body of the airforce, out of the
grasp of LI?s government? remains one of the major adjuncts of the
Generalissimo's continuing power in Nationalist China. but deep con-
fusion and a low state of morale exist in the ranks o the Nationalist
airforce and some 2/3 of the aircraft on Taiwan are currently grounded?
as a result of lac. of proper maaintaainence. Although the CAP has
recently been bolstered by the addition of a considerable cumber of
US FA7's, F-51's and Canadain Mosquitoes, the majority of these are
still in the ..ock areas, uncrrted.-
In the extremely unlikely event that the Nationalist airforce is
committed to a last dit,::h defense along the Yangtze, the Communists
may use these newly acquired planes to cover their crossing. More
likely is that neither the Nationalist nor the Communist air arm will
ever becore major factor, capable of swaying the course of China's
civil war.
Cor:,munist oil shortriri a serious due to US cane'- US oil companies, HBO.
have agreed to to limit the shipment of oil and out all shipments of aviation
gas to Communist-held North China, Manchuria and North Korea.
The Communists are short of petroleum products, especially gasoline,
lubricating oils, kerosene and fuel oils Petroleum supplies have come
from three sources. captured stocks; stocks from the USSR via Man-
churia; and shipments from .[long Kongo Tne captured stocks were of
fair size, i,g. 42,000 barrels in Tiontsin, but were probably consumed
by L114 Piao's army. The Soviet gas, reportedly 26,000 barrels for
February and March, and of very low grade, also went to LIN 'i&o's
array. Imports of petroleum products from bong Kong totaled 16,000
barrels in March and 8,000 barrels for the first half of April= some
of this went to ports of the Shantung peninsula, While this gas may
satisfy a large part of Forth China's minimum needep China as a whole
has been consuming 15-20 million barrels annually since the war, and
1.0-12 million barrels would be the east the Commui iyts would need after
unifying China.
Imports of this magnitude cannot be o::tained from the Soviets, nor
from other Asiatic sources such as the NEI, not only because of limited
production but also because much of the imports must be in refined form.
Thus the Americans and the British have virtually monopoly control over
large-scale supplies of petroleum; the control of petroleum shipments
to the Chinese Communists is now, and especially later, an effective
weapon against the Communists.
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TRY) STA -10-
Dutch military cr 2rat.uns in Indonesia- Dutch military units appear
to be increasing their operations against renrrtants of the Republican Army
(7i r) at a time when pr -negotiation discussions are taking place in
7atavia, Dutch come .ndos have moved north from } andoeng for action
against units of the crack Silivngi Division which have ignored a Dutch
militar
r ultimatum ordering ng thou to cease fighting and to align them-
selves with the Dutch. it- is reported that even before the expiration
of the deadline for the uitimat^4.am, Dutch ocrn ndos infiltrated one Repub-
lican battalion and k .illed the cam xder, a brother of an official in
the pro- epabiican Pasundan ('3overnrrment of " est Java. in other areas
the Dutch forces have also been active Frcm,8 through 10 April Dutch
ground troops and b ers were engaged with 4000 Republican troops
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south- rest of Jog akarta s? th resulting Republican casualties of approx-
i.rzately 1,500,, Such acti:.oris will cause Republican distraa>t to mount and
may make an eventual settlement with the Dutch imposslble~
These actions on the pert of the Dutch military underline one of
the pr ob a is confront ing Dutch officials at The Hague .i4e,, their control
over militarist elements currently controlling the Netherlands governarent
at i atavia. The Comander of the Dutch Forces in IMonesia and the Nigh
Representative of the Crown have consistent y represented a reactionary
and unconciliatory section of Dutch political thinking, Even if the Dutch
delegation currently engaged in the Batavia discussions adopts a moderate
attitude in dealing with the restoration of the Republic, there will yet
remain the problem of coordLiating conflicting points of view among
Dutch officialdom as a whole.,
Dutch and Indonesian representatives meet in 113atavia-- The first
formal negotiations
wl a wv e t he Dutch and eeuu ea 3~s Dance lay 1145
opened in Batavia April 114th in compliance with a March 23 Security
Council directive. Major nroble:te on the agenda are: (a) restoration
of a Repasblican Government at Top-Jakarta, (b) cessation of Dutch and
rnenublican military operations, end (a.) determination of the date and
conditions of a rarorosed round-table conference at The Hague. The IIN'
Commission's attempts to reconcile the Dutch and Republican viewpoints
were hatstraered on the eve of the Batavia meetings when the heads of both
delegations ,de infornrl statements to the press criticising each other"interpretations of the Security Council. directive. The Dutch spokesman
criticized M he prior RRepubli.can demand far restoration. tea Jogjakarta
as an unfair emphasis on one Of the three points scheduled for cons:idera-.
tion