OFFICE OF REPORTS AND ESTIMATES,CIA FAR EAST/PACIFIC BRANCH INTELLIGENCE HIGHLIGHTS NO. 59 13 JULY - 19 JULY 1949

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01090A000500030022-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 9, 2016
• Document Release Date: January 26, 1999
• Sequence Number: 22
• Content Type: PERRPT

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PAR EAST/PACIFIC Bi 1CH
OFFICE OF REPORTS ANT) ESTI1iA`1'.'ES
CEN1RAL I1,TTELLIGENC:E A(TITCY
NOTICE: This doom nt is a working paper, not
an official CIA issuance. It has been eo-ordizze-
ted within ORE, but not with the IAC Agenoies.
It represents current thinkin ; by specialists in
CIA, and is designed for use by others engaged
in similar or overlapping studies. 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 fur-
ther dissemination.
Copy for:
Editor
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a own,
OFFICE OF REPORTS AND ESTIP,IATESB CIA
FAR EAST/rAC.IFIC BRA14CH
INT ILIGEITCE H[G1ILIGIITS NO. 59
13 JULY - 19 JULY 1949
SECTION I. StJ!1 ARY OF PAR EAST TRENDS AND DEVELOPMENTS
Most Far Eastern nations have remained noncommittal in response to
the Chiang-Quirino proposal for an anti-Communist "Pacif'io Union" (pr 2).
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The Republic of Korea has asked that UN military observers be posted
along the "incident"-ridden 38th Parallel (p. 3).
The Chinese Communists have announced the beginning of a new "major
offensive" in central China after a two-month lull in operations (p, 4)
Meanwhile, Communist intransigence in the treatment of foreigners appears
to be threatening future relations with the West to the Communists' own
possible disadvantage (pQ 6).
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The marginal notations used in succeeding beotions of this ?Weekly
or WC") indicate the importance of the items in RIFE opinion
with "A" representing the most impor? tanta
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SECTION II, DEVELOP PATS IN SPLCIPIED AREAS
Reactions to "Pacific Union" Proposal--The Chiang-Quirino proposal for "A*
a Pacific -Union". to counteract and contain Asiatic Communism, has been
received with little enthusiasm. Both the apparent unwillingness of the
US to support such a bloc and the fact that initiative for the envisioned
union came from the "retired" leader of the prostrate and discredited
Chinese Nationalist Government evidently have caused most Asiatic nations
to hesitate before indicating their attitudes.
Three areas -- Nationalist China, the Philippines, and the Republic of
Korea -- have endorsed the plan. Other countries, however, have been
either noncommittal or entirely silent. The Prime "sinister of Thailand
has deferred a decision in the matter by saying that Thailand has not been
invited to participate in the union. The Burmese Foreign Iinistor sta;od
on 14 July that Burma "may favorably consider" the formation of a Pacific
bloc if it would work for world peace and prosperity. However, he ques-
tioned the effectiveness of such a union in combatting the Communist threat
in Southeast Asia.
According to Philippine President Quirino, representatives of the
Indonesian Republic now in the Philippines are enthusiastio. The Nether-
lands Minister to the Philippines, however, has been instructed not to
commit himself. In Indochinas the diplomatic counselor to the French high
Commissioner is worried over the implications of Vietnamese cooperation
with the Chinese Nationalists, fearing that such action would be inter-
preted an interference in Chinese internal affairs and constitute an
invitation for a Communist attack on Indochina, Australia and New Zealand
have made no comment.
Invitations to a preliminary conference to discuss the formation of
the union have not yet been issued, Before doing so, President Quirino
plans to recall Ambassador Romulo from his post at the UNd, to interrogate
Pacific nations as to their recommendations. Meanwhile, QuirinoD Chiang,
and Korea's President Rhee will undoubtedly continue to press for US sup-
port which, if received, would be a strong inducement for the participation
of other presently noncommittal nations0
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SECRET
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Re ublios re uests UN Border Observers--In a recent letter, the Foreign "B"
in ester a e Repu is o area sug'Peated to the United Nations Com-
anisaion on Korea (UNCOK) that a unit of UN military observers be estab-
lished in Korea, to work with UNCOK in halting attacks by northern Korean
forces along the 38th parallel,
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A previous proposal for UTT military observers had been considered
by UTICOK during April and May, 1949, but the matter was dropped with-
out action being taken. At that time, Commission members VMre divided
on the possible effectiveness and advisability of observers in Korea.
The UN Secretariat, further, informed UNCOK on that occasion that UN
military observers wore sent to the field as a result of Security
Council or General Assembly action. The Secretariat stated that since
the US eras withdrawing its armed forces from Korea, it could be pre-
sumied that America, at least, was satisfied that no threat to inter-
national peace existed in the area and for this reason there appeared
to be little justification for a military observers' mission.
The pressure of the present formal Korean request for observers
ikay force UNCOK to re-open the question. On the basis of recent inspec-
tions of trouble spots along the parallel, the Commission, if it so chose,
could adopt a resolution for presentation to the fall meeting of the UN
General Assembly stating that a threat to international peace exists in
Korea and recommending the dispatch of military observers. However, it
is prebahle that, unless the Us strongly supports the Korean suggestion
for observers, UNCOK will avoid further action during the final weeks of
the Commission's stay in Korea.
CHINA
New Communist Offensive starts--In central China, the two month lull in "A"
military opera, ons has apparently ended. Peiping radio announced that
Communist armies had launched a "major offensive" along a front extending
eastward from the Yangtze gorges in Hupeh to the middle reaches of the
Kan River in Kiangsi.. Peiping radio claimed several important victories,
including the capture of Ichang and Shasi (west of liankow) and Kian and
Anfu (south of Nanchang). The Nationalist later claimed that Kian mac
retaken in a oouunter-attack,. The Communist offensive, according to a
Shanghai dispatch, is aimed in the direction of Canton, some 4-500 miles
to the south. The only sizable Nationalist force between the Communists
and Canton is the 175,000-strong Army commanded by PAI Chung-hei. PAZ is
expected to withdraw into Kwangsi as soon as the Communists approach his
present positions in the area about Changsha. Once fully under way, the
Communist regulars, aided by irregulars already operating in south China
and by the absence of firm Nationalist resistance, should be able to roll
into Canton in about 30 days.
h~u
Arbitrary taxation of_foreign firms--Cormcunist authorities recently have
'.e posed arbitrary levies on business concerns which discriminate particu-
larly against foreign companies. Although nominally imposed as income
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taxes., the assessments bear no clear relation to earnings. The amounts
charged apparently were determined arbitrarily on the basis of what the
traffic could bear. Thus far., these taxes have been imposed in two
cities. In Hankow, a levy totaling over US$600,000 was imposed; in
Tientsin, the levy totalled US$2.,0009000. It is expected that Shanghai
will soon follow suit with a very much larger levy.
Most forei(7i firms do not have sufficient cash reserves to prey such
taxes. As a results they are faced with the alternative of drawing funds
from abroad or else l.iquirlatirrg local stocks and capital egi.iiprnent.
Foreign businesses are apprehensive that these taxes V6.1.11 serve as pre-
czdents for further arbitrary tsssesarnents in the near future and that
such taxes will be deliberately applied in some areas to sgraeeze out the
foreign competition in favor of government trading organizations,.
!r:'gloultural disasters will delay rooovery--Communist China is Mobilizing eB'
for an all-out fight ar*ainsta series of agricultural disasters which
have plagued the countryside during the past several months. Some million
acres of rice land in the Yangtze valley have been flooded,, avri.ng drouths
have damaged crops in north China and south Manohuria and locust swarms
have further reduced northern yields. The Communist press is filled with
directives regarding famine counter-measures and dyke-building?
This threat to the food supply will undoubtedly- force the Communists
to divert much. of their energy from the task of rehabilitation to '- v job
of salvaging; crop production,, Coarse grainy with short growing seasons
are being planted in the north with a chance of taaturin.r before autumn
frosts. Secondary dykes are being thrown up to keep the flood waters of
the Yangtze from inundating; new crop areas. The revenues of the Communist
regimes nonetheless., will be cut seriously and general economic recovery
in Communist China will be delayed by the reduced supply of food and raw
materials for domestic consumption or export.
Ambitious fib r rain elan-~-~The Communist All-China Railroad Re wulatory
Conference has okayed a (five-ye?.tir plan t,,.i restore China's existin?t' 16?700
miles of rail line coripletely and to add another 6.,6OO miles of track to
the system, Railroads have already been given a high priority on manpower
and raw material allocations by the Communists, and they are working to
rehabilitate the lines they now control., Communist successes in rehabili-
tation to date have been achieved through a process of cannibalization which
has left the lines weak and inefficient. Double-tracked. lines are now
single-tracked ones; bridges. ties, rails and ballasting are often of an
emergency nat-hre, The Communists will soon arrive at a point whore canni-
balization is no longer rewarding and, with further expansion., will find
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themselves facing a shortage of rolling stock and locomotives. In all,
restoration of China's rail system is estimated to require at least
US$300 million of imports? The CCP should consider the rebuilding of
existing lines an amply ambitious project; expansion in the next five
years seers a grandiose dream.
Persecution of Fore3 ers mawbackfire-Communist authorities in the ftBe
Yangtze alley are doing nothing to halt the abuse of foreigners, par-
ticularly Americans, in that area and the harsh treatment of foreigners
apparently has either the direct sanction or the implied approval of
local Communist officialsa Necking authorities have insisted on "shop
guarantees" for Ambassador Stuart and his party before the issuance of
exit; permits for his return to the ITS. These regulations require that
all claims against departing foreigners must either be satisfactorily
settled, or assumed by a responsible person or firm remaining behind,
before any travel permit grill be issued. If the "shop guarantee" form-
ula is universally applied, it could conceivably result in a situation
whereby all foreigners remaining in China would find themselves hostages
for those already departed,,.
Anti -fore igniarri, as exemplified in a number of Shangahi incidents,
may derive from a reaction to Communist propaganda, lately intensified
by the strained economic position of the blockaded city. It further
reflects Communist inexperience in city administration, and sL-rong Com-
munist suspicion of "imperialist" influences in general, The end result
of continued anti-foreignism will be to deprive Communist China of the
services of foreign money and skills and adversely affect Communist chances
of recognition by Western Powers. Unless curbed,, the nationalistic im-
pulse so carefully nourished by the Corsnunists may w9li prove disadvan-
tageous to them.
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