OFFICE OF REPORTS AND ESTIMATES, CIA FAR EAST/PACIFIC BRANCH INTELLIGENCE HIGHLIGHTS NO.54 5 JANUARY - 11 JANUARY 1949

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01090A000500020015-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 17
• Document Creation Date: December 12, 2016
• Document Release Date: June 13, 2001
• Sequence Number: 15
• Content Type: PERRPT

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SECRET
FAR EAST/PACIFIC BRANCH
OFFICE OF REPORTS ANIXESTIHATES
CENTRAL INTELLIGENCE AGENCY
WORKING PARER
NOTICE s This document is a working paper, NOT an
Zigriaal CIA issuance and has not neoessarily been
coordinated with other ORE produoing oomponent*.
It represents current thinking by one group of
cpecialists in CIA, and is designed for use by
other* engaged on similar or overlapping studies*
The opinions expressed herein may be revised before
final and official publioation. It is intended
solely for the information of the addressee and not
for further disseftination?
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OFFICE OF REPOR1S AND-ESTINATES,
FAR EAST/PACIFIC BRANCH
INTELLIGENCE HIGHLIGHTS NO. 54
5 January - 11 January 1949
SECTION I, SUMMARY OF FAR EAST TRENDS AND DEVELOPMENTS
aThe Asian Conference which is sebeduled to convene in India on
20 January to disouss the Ind,esian situation is expected to become an
onti.-oolonial rally (page 3) -
h49 USSR attacks in the Far Eastern Council on labor.po to es an
ter Allied Council for Japan (on military,revival) were rebuffed. However,
similar Soviet propaganda efforts will continue (page 8).
In, North Korea, an agreement to build naval bases for the DSSR is
rted (page I)land an uprising of dissidents is scheduled for mid-January
(page 6). Sou ?reels President Rho* will probably dump Prime Minister
Lee Bum Suk, despite official denials. A, "Imitable replacement may be the
first step towards gaining Rim KoWe support of the Government (page
Nbanwhile? US observers report that the Coast Guard must substantially
strengthened in order to halt smuggling of rice out of Korea (page 1).
This week0the Communists warned FU Tsoolviss troops to surrender or die
and than resumed their military operations, assaulting Tiexttain in the north
and wiping out the remnants of TU Tusseing's forces in Central China (page
8 ). Meanwhile, the Comnunist reaffirmed their refusal to compromise with
the Kuomintang (page 8) aid CHIANG Kai-ehekos regime celled for four-power
mediation and Dade plans for flight to Taiwan (Page 0)
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 US assistance
in order to maintain them (page 11).
The marginal notations used in succeeding sections or this Weekly
("A", wr or "Cu) indicate the importance of the items in OE opinion
with "A" representing the most important,
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The aaseaora of Karens in Burma may precipitate widespread communal
"Airfare (page IA e
In Siam the Phibul Government continues in its 'trend toward economic
nationalisrt (pawn )0
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SECTION II, DEVELOPMENTS IN SPECIFIED AREAS
GENERAL
../...erenceedtoesomeananti?colonial....rallx
The India...sponsored Asian Conference is now scheduled to convene to
consider the Indonesian question in NeerDelhi on 20 January. Although
enthusiastically welcomed by nearly all courrizies involved, there is no
strong indieetion that the conference will produce any immediate threats
to Dutch plans in Indonesia. Fifteen countries (Pakistan, Egypt, lobanon,
Syria, Saudi Arabia, Iraq, Trans-Jordan, Taman, Surma, Philippines, Australia,
New Zealand, Afghanistan, Iran and Ceylon) have accepted Nehru's invitation
to attend the oonferenos. SUM and Turkey have refused attendance on the
grounds that the problem can best be handled in the UN. No answer has yet
been received from Ethiopia while China is sending only an observer. Since
the conference was called h4rriedly, it is doubtful whether any olear.out?
carefully oonsidered agenda will bepresentedtoths delegates. The confer..
ones is likely to reoommend several measures-..including economie sanctions--
designed to hamper the Dutch. Hourvers 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 maybe proposed. Such aid, men if it could be afforded and
transported to Indonesia by,the ocuntriee ooncerned, 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
bloat, but divergenoe of interests among the countries involved, and their
previously demonstrated coolness to Indian leadership and the absence of
wuffioient means of enforcement will limit suoh a development in the immediate
future.
64.s
The conference may go so far as to draft & plan for Indonesian independ-
ence to be forwarded to the Security Council. In any event, it is expeatad
that the conference will develop into a general anti-colonial rally. Despite
vigorous VS efforts to clarify its position an the Indonesian question which
have met with some suocess, the US will not escape considerable criticism an
the grounds that it indirectly supported Dutch colonial interests. The ill
will engendered will 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 on the part of the conference members. However, any
serious cleavage between Asia and the West and the development of a situation
favorable to SaelArt propaganda will be thoroughly exploited by the DSSR.
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JAPAN (Cont.)
Manattjang,AtkA.AMIajw,joliel. The USSR's intensifying pro- Rpm I
gram vis-asvis Japan materialized within the past week before the Far
Eastern Commission (rm) and the Allied Council for Japan On-A6
January, the FRC in closed session at Washington voted down by an over.
whelming majority the USSR's resolution to condemn the Japanese Governs
mantis reoent law prohibiting strikes and collective bargaining by
government workers. USSR Ambassador Pamyushkin promptly wodveed a pre-
pared statement censuring other nations for approving these 'anti-demo
cratie measures. Other PSC representatives indicated their vote was
not so much an endorsement of currant labor legislation as a rejection
of Soviet tactics.
In view of the public censuring of the USSR by the other ID webers
of the FEC last December for breaking the secrecy rules governing their
proceedings, Panyushkings immediate release to the prose of his conden
nation of the FEC ReCision is noteworthy and further indicates that the
USSR's tactic was primarily propaganda.
On 4 January at the AMT meeting in Tokyo, General Derevyanko, Soviet
member, Charged that the US is permitting revival of the Japanese Army
through the expansion and militarization of the present police establish-
ment. Point by point, US member Sebald refuted the Soviet Charges,
Characterized them as propaganda and added that no army could be organized
on such a decentralized framework as the Japanese police system now
possesses.
At the international level, Soviet policy towards japan, despite
rebuffs, continues to call for propaganda which labels the US as a
*warmonger* and is intended to embarrass Occupation policy. (See Wpm
Weekly 10-16 November.)
Lk&
beenreceiya4 The terms of a treaty, reportedly con-
cluded by Kim II Sung with the Soviet Union, provide that North Korea
will render support to the Soviet Pacific fleet by furnishing naval
bases. Construction work necessary for the development of port facili-
ties at Chonglin? Wonsan and Tongchung Bay (all on the east coast) is
expected to begin during Narch 1949, using Korean labor under the
direction of Soviet engineers. Propaganda will be issued in advance of
construction work to the effect that the Soviet Onion is helping the
Korean people develop their harbors.
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gom (cont.)
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See B 10-16 November 1948).
successful, simultaneous attacks on public installations in
won, ryong and Haeju (ME of 38th parallel), coordinated with
support from a disaffected Gaeta Guard vessel that will move from
Chinnampo to Haeju, is to be followed by establishment of guerrilla
headquarters in the
It is certain that dissatisfaction in North Korea exists and is
increasing. Soviet withdrawal may afford dissident elements the oppor-
tunity to organize 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 distazObance in Barth 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.
Wgxedg.Antrajaely. President Rhee has publicly refuted rumors of
an impending Muffle of his cabinet and has branded as "groundless talk"
reports of a rift between him and Prime Minister Lee Bum Suk, Despite
Rhea'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 Khoo 's plans to unite all rightist
youth in a "non-political nation defending' organization under hie own
leadership.
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Rhee may appoint as Prime Minister a personal friend and follower
such as Shin Suk Woo or Shin /k 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 repproaohment between Rhee and the Kim Koo-Kim Music political elements
in order to increase popular support of the Republic. It can be pre-
sumed that Kim Roo 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 Rhee. The appointment of
Cho So Ang, 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 Kiusio.
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KOREA (Cont.)
gagLibagaixiseasan. US Special Representative Macao is concerned "Bo
over the under-developed status of the Korean Coast Guard (Navy). This
arm of the Korean security forces is relatively neglected and possesses
virtually no vessels or equipment. Due to the Coast Guard's Inability
to patrol the long coast line effectively, large quantities of rice are
being smuggled out to 'Upon and North China, jeopardising the rice 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 South Korea., Although it would be
impossible to stop all snuggling, an oftective Coast Guard equipped
with suitable small craft and auxiliary equipment could reduce it to a
minimum.
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SECRET
CHINA
Communists issue ultimatumdresurne activ0 wee
The CommunisTWSWriisi radio has broadcast a messaee, signed by
General LIN Piao and his political commissioner, LO Jungehuen to all
Nationalist generals defending North China, warning 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 with saving" itself. Pointing out that certain lessons are
to be derived from the fate suffered by the encircled forces at Kalgan
and Hsuchou, the broadcast urged all commanders to "follow the example"
of CHENG Tung-4u?, who turned over to the Communists at Changchun?
The radio advised that if "all arms, assets, warehouses, and industrial
and communications equipment" are transferred intact, the officers
will "be accorded lenient treatment." For the third time the Communalists
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 NIEH Jung-chen's columns from Kalgan, 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 dayso
Meanwhile, in Central China, the remnants of TU Yu-mines 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 refusal to compromise with Kuomintane. wen
Several broadcasts from thinese Communist Party headquarters 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 Party 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
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later in regard to Communist intentions toward Hoeg Kong and ludo-Chi:mt.)
The Communist broadcasts repeat the "war criminal" list, state that
every one of these vicious bandits is inseparable from Amerioan
imperialism," and declare flatly that the Communists will not oompronime
with or show mercy to such persons. The Nationalist pesoe proposal
is regarded as an attempts (a) to preserve the interests of the Four
Families...and American special privileges" and. (b) to pin time for
the Kuomintang to "stage a comeback and destroy the revolution... The
revolution therefore demands "the thorough destruction of all reactionary
forces and the expulsion of American aggression."
While these remarks have been attributed by the Communist Party
only to its lesser officials and organs, rather than to the Central
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 Communist-controlled 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 replaoement of the US 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 Communists.
China's request for four-power mediation of the civil 'martin part
an effort by the National Government to Play 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 war. Though 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 CHIANG Kai-shek.
Pressures from both within and without the Government demanding peace
and CHIANG's retirement have continued to grow to such proportions,
since the Generalissimo's bid at the beginning of the new year for
peace at "his price," that it is unlikely either the people or the
troops can be persuaded to back a continuation of theyar. Although
earlier, CHIANG has seemed prepared to retire in the near future in
favor of LI Tsung-jen, Communist intransigence in response to the
Oeneralissimo's peace bid has sharpened his decision to continue resistance.
CHIANG's apparent change of mind undermines the efforts of the peace-
seeking members of the Government, leaving them for the time being power-
less to act, while CHIANG makes further preparations to continue
direction of a rump government from Tallman.
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Taiwan beeorninf National Government stronghold. Taiwaes new
Governor, Ciiiii-bheng, has stated in the press that he will never allow
Taiwan to be invaded by Coueunist forces or ideologies and that we
ehall endeavor to make laiwan the main fortress for the rejuvenation
of the Chinese nation." Additional reports indicate that various National
Government assets such as gold bars, factories, 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 Ghinese control of
Taiwan as well as the prospect that a hatioualist regime there might
not obtain general international recognition with mainland Ghina under
a different government, CHIANG Kai-shek apparently hopes to exercise
power in Taiwan indefinitely, continue his fight against the Communists
from that locale, and eventually attempt restoration of his rule in
Chins,
Nationalist inflation reaches unparalleled heights. The Chinese
Government is powerless to stop the unprecedented inflation which has
been running mild for three weeks. The Government's resumption of geld
sales at an "equalised" price approximating the black-market rate was
the only economic measure undertaken last week. Gold is now reported
to be over GY $10,000 per once and the U8 dollar sells for more than
GY $200 on the black market. The traditional settlement of debts
before Chinese New Year (January 28) is the only stabilizing influence
in China's present rocketing inflation but its effect this year, in
view of the pressure of the upward trend, will probably be small?
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CRET
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.Jr.1-,TPPIWS
Preaident ,.:14.1rino reverted considering trip to US. The us military nisi
?-_-,trIchn In ManilA 'tate, til'it Aording tc recent local press reports, .
r,ajrinn will visit the US within the next few months to dis-
tr, Phi:Appian reilaililitatin And over-all defense relationships with .
t.-..-) T1S The tonal cress soggw,Ac that n nommlble change in US defense
raav be unzier ocreiderstim and votes "official sources" as .
Ang that the Philippines may reorganise its army to conform with the t
in US clanninv..
!-.1.17:11re nfficialthar phomn growing ea-10.m over the Republic's
,ratcgic vulnerability in vies of the China situation. The US Attache
ropri:43 taat there are increasing signs that the Philippine GoVernment
desires the eloscat military relationship with the US. in addition to
r,1 oencern over the Philippine defense. position, Preeldent.gnirino
prcilably 'nelieves that such a tripmmuld have a salutary effect on his
1'10 TAklai,dwIt.Isi campaign -- carticularly if he can point to success in
further US financial aid for rehabilitation and veterans/ benefits.
):sAurable Us assistance will orobabky be requested for refu a "B"
in the PhTioines. The mcii-likily-G-UW i or ccn.eidorabe ass stance
In'i=fiFing and maintaining a cam at Gillum, Samar Oa former US naval
t-rne) enr an *stinted 46,400 European refugees -- mainly White Russians ---
c:01 neer in arriving from Shanghai. Representatives of the Inter-
:0 crganisation (IRO) are preparing a request to be submitted
753 A.?-Ir for can equipment for the refugees who will be permitted to
In n.,lippines for four months. Philippine National Defense
lrt 4r, le planning security measares to restrict the refugees to
'in 1,-Agrat area, appears to be depending upon ITS agencies in Shanghai
?o,ide -ration obtained by eareenin, refugee lists. The US Hilt-
frer n !Tenth% anticipates that the ITS Army will be asked to assist
establishment of the ,ktivi.1 camp since no usable shelter is
kt orent. available. There remains Lila farther possibility that the US
m.L.7 be asked to assist in maintaining security in the camp area since it
is likely that Philippine officials don't want to shoulder such a responsi-
bility alone.
BURMA
Massacre of Karma ma eci itate vide sad canal mortars. Karen- nAr
Burman re at one Burma have been further strained, pass to the break-
ing point, as a result of the massacre by socialist controlled police levies
of at least 80 Karen. attending Christmas Eve services at a village church
in Mergui District in Southern Burma. Undoubted]; there were retaliations.
Karen resistance throughout Burma has became increasingly evident, and they
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BUM% (continued)
are reported attacking Government forces in some areas with the purpose
of securing additional arms. Although Prime 'Master Thakin Nu and
Karen leaders apnear eager to avoid communal strife, neither are aapable
of controlling their more extremist followers and the Plergui atrocity
may prove to be the incident signalling the ccemmmeement of open warfare.
Unfortunately, the major issue of whether or not the Karens are to Lave
a separate state has not been resolved as both parties remain adamant in
their position regarding the creation of such a state. At the moment the
Karens are extremely anxious to present their case to the UN and foreio
governments. Meanwhile, the Burmese press continues to accuse ?Anglo-
American imperialists" of aiding the (arena. For the moment, racial
antagonisms appear 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 progress.
SIP!
Phibul regime continues trend toward economic nationalism. The "B"
Siamese econoner, although relatively stable and viable, the
1948 political pattern of centralization through the trend towards in-
creasing controls by the national government. The economic nationalism
of the Phibul regime is exhibited best 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 a War Veteran's
Organization, the Phibul regime has attempted to enter many of Siam's
economic activities which are dominated by Chinese. !foreoverla Siamese
Labor Union was activated under governmental sponsorship in competition
with the strong au' thoroughly Chinese dominated Central Labor Union. The
Phibul government has enlarged its field of economic participation, addition-
ally, by reactivating the Government Purchasing Bureau which is currently
expanding its activities. A later indication of this economic trend is
the recent establishment of import controls, aimed principally at luxury
goods. The Siamese Government amarently considers that excessive foreign
exchange is being dissipated through luxury purchases and has acted in an
effort to conserve foreign exchange to be directed at the purchase of
equipment for more productive purposes. Although not yet imposed, quota
allocations and exchange controls are being considered 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.
lencr
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SECTION III. DIGEST OF IMPORTANT STUDIES AND ESTIMATES
MONETARY UNIFICATTON IN COMMUNIST CHINA
Present monetary_ullin 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. Honey, banking and taxation policies
and practices in Communist.dominated China and Manchuria are almost
completely unknown. Despite the announced establi&hment of a single
Communist currency for all North China on 1 December, 19489 there
has been no report of its issuance and the old currencies are still
in use.
IL, Obstacles to Communist exploitation of the disorganized Nationalist
..6-2.2214221'
Since the decisions of industrialists, businessmen and the Govern-
ment in Nationalist areas are dominated by short-run considerations,
there has been little incentive to invest sven 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
organisation 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 dealingo
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 from
outlying regions and to widespread tax evasion. The existing industrial
framework in Nationalist areas is too inefficient and obsolete to be
satisfactorily utilized by a successor regime.
III. Communiet currem_mification.
T
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The Communists have recognised the inadequacy of their own
monetary systems and the undesirability of depending on the Nationalist
financial system, Therefore, in anticipation of gaining control over
all of China the Communists announced unification of the four currencies
circulating in "liberated" China, end the merger of Communist banks
in China into the People's Bank of China, The Communist broadcast
stated that the geographical unification of the "liberated" areas
and the resumption of interprovincial commerce have made necessary
a single currency for all Communist China, excluding Manchuria.- The
Communists state that the new yuan will be backed by "grain, cotton,
0:Lote 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
action1 in combining the four different currencies, should help
aonsiderably, 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 00Mb under Com-
munist domination the need for central policies will be sharply
evident, Since industries cannot be taxed in kind like farmers, an
adequate monetary system and equitable commercial tax regulations will
be needed. The supplying of Aailan coal to Shanghai exemplifies
the interregional trade needed. The easy flow of commerce is possible
only with a common currency and a unified banking system.
The Communiste want to eliminate the gold yustp which is a symbol
of the old order. In newly occupied areas they have first accepted
it at greatly devalued rates and then rapidly replaced it. Also
it is easy for a nationalized banking system to wipe out private
investments by currency manipulation. The Communists are expected
to undertake measures for this purpose,
IV. Acceptance an_l_q_abili4V_ILUIltpri currency.
The issuance of the new yuan can be simply accomplished by
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accepting it for taxes and selling government-controlled 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
any paper ourrenoy, no matter haw stable or powerful the supporting
government. This distrust will linger for a long time in rural areas
and will require considerable "education, and enforcement to overoome.
The stability of the currency will be doubtful, for a conservative
banking system cannot be expected from 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, if attempted, will
add to the instability of the currency. On the other hand the
Comnunists 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.
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V. Exclusion of Manchuria.
The exclusion of Manchuria from the Communist ourrency unification
is additional evidence of the separation of the North China and
Manchuria governments, and the possible emergence of Manchuria as a
Soviet-dominated "People's Republic." Lack of conmunioations is a
poor pretext as communications with Manchuria are certainly no worse
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 commit its economic resources to its
much poorer and disorganised neighbor to the south
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