INTELLIGENCE HIGHLIGHTS NO. 5 WEEK OF 8 JUNe - 14 JUNE 1948

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01082A000100010016-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: December 16, 2016
• Document Release Date: April 13, 2005
• Sequence Number: 16
• Publication Date: June 14, 1948
• Content Type: PERRPT

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? DOCUMENT NO.
NO CHANGE IN CLA
!E.CLAS371F.0
CHANGED TO:
NE:YI t.-iEV!EV: DATE:
UFICE REPORTS P.ND SSTIVATES, CIA
-FAR EAST/PACIFIC BRANCH
INTELLIGENCE HIGHLIGHTS NO, 5
MK OF 8 JUNE - 14 JUNE 1943
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DAT 1
REViEWEF
:ACTION I. =KAU OF FAR EAST TRENDS AND rwrizoTtn:Ts
The US Senate Appropriations Committee has vote as a laparete itcd for
the next fiscal 7-ler,1125,000,COO for the economic rehabilitation in 1Japan,
Korea and the Epticyus Islands(Page 3). 25X6
The reluctance of UNTCOK to regard the new regime in South Korea as
national in scope is motivated in part by apprehension on the part of some
members or Soviet reaction and by a desire of other members, who have Far
,Eastern interests, to keep the US in Korea (page W.
The Chinese military scene, other than sporadic fighting in southwest
,Shantung and in rest Homan remains relativelr quiet (page 6). legislative
opposition to the premier's program as well as its open criticied of Chiangts
personal position is fUrther evidence of the meaknessof the National Govern-
ment and of the continuing loss of prestige by' Chiang Kai-shek (page 6). '
In Burma serious political tension resulting from Thakin Nuts enneunce,-
sent of a leftist unity programcontinues (page 8).
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,The proposed restOlishment of the Chinese conmecation systam strains
Sino-Frendh relations in French-Indochina (page:40
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IIc DEI/ELOPKENTS IN SPECIFIED AREAS
C.?NERAL
-Zonate Co-mmiitte Yoten rallabilitation n.-Ld for i,),]sasg.
Tho aerwte Appropriatioas Cou,Itt,:D vote 64125,0 for the next "A"
r'Lierl year as a separate item for eco.lole.c rehabilitation in Japer, ':,-orea,
1;19 Ft,rukyu Islands unler Econc,mic Cooperation Admin'!.s.tration sar?ervisiono
rf,e P.,,wwtmeat of the Arw had rsclues'...r.d S150,000,000 for tYn purpo. The
ha6 prn?inusly refused n simillar appropriation for f.'sconomic roNabilit!tion
in Japan on tho recommendation cf its Committee on fgwop,Alations. The Committee
held that such an activity is related to the general reconstruction program of
the JCA and should, therefore, become an integral part of the general economic
The Senate Appropriation Committee also recommended 310200,000,000 for
,fovernmont and relief in occupied areau (Germany, Japan, Korea, and the Ryukyu
The Department. of the Army had requested $1,250000,000 for this
-purposeo The House voted the sum requeted by the Department of the Army but
?on a fifteen-month basis. Although, the Senate AppropriAions Committee
reduced the amount requested by the Department of the Arry for it government- '
, -? and relief in occupied areas by $50,000,0005 the roeincion is more than offset
by the addition of the rzcovory ite
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SCAP to a- 'rove rd Japanese Whalinp edition. S;AP i1) ;thori
(Tnranese w ng expe(a..? on or the ser.ison, the thir!,ruth
ax.r.edition during the occupation. Th-S.s action is being imiortaker.
the assurance of the Department- of the Army that SCAP possesses the
necessary authorit,' and jurisdiction.. filowever, in view of the etrenr
proteSt to such an expedition by interested nations (See IVFE
10 ? 21":.lezt 1948) SCAP will limit the expedition to two .factory vessels
i:stead of the three originall,y contemplated.
- Item nition by the United ationsTemporarj Commission on Korea of
the meet: e ',orean assem as?a national"ra Trgiedered ?
y e o tos tion a certain ...embers. eonsisten t e r ear er s and
acains e a ing o e ect ons South Korea alone, Syr a, Australia,
and Canada feel that since the asser..bi,.,. does not represent all of rorea
neither the aseerabV nor any gove?Irrent established by it can be
desf gnated as "rational". India is believed to share this view, which
seems to carry sufficient weight within the Cornraission to produce a
highly cautious approach in interpretim- its oblirations in Korea. Thus,
in its press release announcing its readiness to ccnsuli-.. vrith The "elected
retresenta,,ives", WITCOK carefully avoided any reference to a "national
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assembly '1 and :lade it clear that the initiative in consultation Trust
be taken by the Koreans. The Com .issionts reluctance to reard the new
ie in South Korea as national in soolse is undolibtri-117 -:cstivatel
al eo by apprehension among some mertbers of Soviet r 'on, and by a
drisire arnonr, those members with Far Eastern interests, e keep the JS
ir Kerea..
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geelee'e
7zhttn. in s out hem t teentspere.anci.jaegeettegsnmajeseakince
getivitt in China during the past ueek. Late prase renorts indite thet
teA Communists are nee engeged in minor raiding activity along the Yangtze
Yetver near its mouth. These (southern cempnigns are cheracterieed by their
fluidity and their present inconclusivenese, representing broad-scale apple-
cetione of well-known CommunIst guerrilla patterns. Neantually, the full
eeexht of Communist military pressure can be expected iu the Northeeet, but,
te yet14eo alleout attacke have been launched in this area. Present Conmaniet
eTferte In the Changchun sector have resulted la the close investment of that
while the capture of the city's two main airfield's hes eeriouely reduced.
tital airborne sup-plies. This attack Ines now token on the aspect e of c bole...-
1:nd action, although a full dresseasault on the city can be expected tf
Nationalist resistance proves weak. However, it seems eori likely that the
mein Communist effort will be either in the Chinheien-Rulutao area or. at
Kukden.
In the current gloomy Nationalist situation, the Generalissimo is
reportedly worried and anxious for immediate, direct US military aid and
advice. Be is plagued with problems of regional commend organization within
the framework of his Netionaliet Army. Although he apparently realizes the
necessity for tightening the command structure, he is constantly faced with
the questions of seniority, face, and personal loyalty which he must attappt
to equate with the appointment of able, honest men if his regime in to survive.
Latestelevelopeant in this situation in the refusal of General Psi Chuegehei,
an able man, to accept the Central China command becmaso of a disagreement
.over the extent of his power in the area. .
Chian i..ehe continues t exhibit 1.11.0111v Adenseen eeeteLfelen
armatijainsaititimuxuAsum. While he may be Willing to accept more
extensive advice from the US, he is not receiving complete cooperation from
his subordinates, The legislative opposition to the Premier's rieo6eala will
probably prevent the formulation of any effective policy and is further
evidence of the conflicts among governmental cliques. In addition the legislature has even turned its criticism on Chiang's personal position. The
Generalissimo is faced with increasing sentiment within Kuomintang circles
for his removal and for accommodation with the Communists. Nevertheless
there has emerged no leader who is capable of assuming Chiangleeposition
and without him the country would probably revert to a regionalism which
would facilitate the extension of Communism over all of China. Despite the
fact that such a political collapse remains a possibility, the present
chaotic situation could continue for several years. The Communists" problem
of consolidating administration over areas wider their control MAy make
further extension of their power a slow process.
Chinese anti-A:04cm eetetionehas been continuinc with demonstrationc 2B4
spreading to Peiping, Tientsin and Nenking. Ambassador Stuart's speech of
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Sena 4 defending US policy in Japan and warning against consequences of
demonstrations, though generally approved in most official circles, has
been widely criticised in the press and by student groups.
nall-WILUM-DatariejleedeleinCEAKI. Despite an agreement under
which the Chinese National Government granted the US the right to fly traffic
between Shanghai and Hong Kong, the National Government has argued against
granting the US the right to Fifth Freedom traffic on through flights beteeen
the two ports. They maintain that such traffic constitutes cabotage, inaeaudh
as China retains sovereign rights over that portion of Kowloon Word the song
Kong airport -is situated. The US invoked the UK's participation in this
Fifth Freedom traffic In support of its claim for the tone right, but the
National Government countered with the contention that the partilipation wd
teen limited by agreement. An authorized British official, however, has
denied any limitation of Fifth Freedom traffic between the two ports arising
from through traffic, except that the agreement provides for a limit of 50 ,
passengers a week in each direction. The National Government does not want'
to grant this Fifth Freedom right to the US because in that event it will be
claimed by other countries.
lbreian Trap. Initial reaction of exporters and importers to the now
exchange link system announced 31 May is generally favorable but cautious.
This measure was established primarily to (1) encourage exports, and(2)
provide foreign exchange for imports. To date exports have increased only
Slightly.
Latest Chinese Customs statistics show that commercial imports for April
exceeded exports by almost 50%; with imports valued at US $25 million and
exports US $16.8 million. The deficit balance for the preview) month reached
US $15 million compared with US $1.7 million for February and US 15.2 million
for January. Petroleum Continued as China's principal import in April fole
lowed by metals and ores, while piece goods remained the leading export
followed by yarns and sugar.
? Currency/Prices. Prices rose sharply following recent adverse military
developments in Shantung. Zxchange controls over foreign currencies failed
to halt the upswing.
The Shanghai Markets
US $ Pachenee (Sellipalate)
nalimakaztatesUgen,
B sigiggegrat-
Thie week
(11 jun 48)
ON $480,000
ON $1;600,0013
CR $7,900.000
Week ago
( 4 Jun 48)
, 480,000
1,250.000
6,600,000
Month-ago
(11 May 48)
328,000
1,300,000
5,800,000
Year ago ?
(11 Jun 47)
12,000
35,000
370,000
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?8.
Mtn
Political crisis result from announcement,ot Leftist uniti
procram con ues. Prime 71,n star Thak Nuts recentainied
Leftief-un* program appears now to have been an attempt to outbid
the insurrectionary Communists and to preserve the coaliticn Anti-
Fascist Peoples Preedcm League (AFPFL) which sponsors the present
elvernmont. The Government's program has not yet been accepted by
the Peoples Volunteer Organization (MO), which is made up of 300,n00
- 00,CW loosely organized, unprincipled but relnttvely well-Areed
eembern, and is one of the two major components of the AFrfL. The
eleortunistic 1V0, which among other things advocates outright con-
eeation of foreign-owned property eithout payment, eeke to end the
.ivil strife by negotiating for the inclusion of the Communists in-the
government. There is a strong possibility that members of the Pin,
which has no responsible leadership at present, may elect to join the
Communists and precipitate a more abrupt disintegration of the ,TEPL.
Such a development would aegravate the military situation as sUbstantial
numbers of the ;'.'ilitary Police are presently recruited from the pve,
Thakin Nu, who insists that the announcement of his leftist program .
WWI for domestic consumption, has reaffirmed his belief in the democratic
Prooesses of government, but admits that he has created a dilemma for
himself.
His announcement that he would retire on 20 July is an atteemt to '
regain his lost prestige by working for unity as head of the AFPFL and
not the eovernment. The period during which the duties of Prime 71nister
are assumed bereft Let 'Yee who has been announced as successor to Thakin
may well be the most critical period. 1:1hile Do Let Ye is believed
to be competent, he does not appear to be a leader of outstanding caliber,
nor has he yet publicly committed himself to apy definite program,
Although a cabinet shake-up which may accompany the change in Prime
"inisters could conceivably have a temporary stabilizing effect on Burmese
politics, it is likely that the PV'), with Communist support, will continue
to press their demands thereby prolonging a. serious threat to the stability
of the Burmese Government.
lianTIRSIA
Presentation of "final" ITS sian for arc ne tietions ma determine
future The presen t on on June to Primer Ha ta of the
filaonetilan Republic and to Acting eovernor General Van Itmk of the
Netherlands Indier Government of drafts of a "final" TIS plan as a basis
for the continuation of ITN Good Offices Committee (Gr.r) negotiations .and
the creation of the proposed United States of Indonesia (NST) has thorough-
Ly upset the Netherlands Government and may the future of the
MC. The draft plan,wedch was initiated by the HS delegation of the UN
Good nffices Committee (uocrc). and after minor changes approved by the
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2 5 X 1
Mr IT PIM IIPIA
Chinese tion ? class become d tic issue. A recent "B"
decree a aaiontfr e Frenoh
intend to re?esteblish the Chinese o engregation system (registratica and
orgonisation-of Chinese by princes of origin) in Tonkin. Temporary
appointments, pending the setting up of electors' lists, have been made
for directors of the Cantonese and Fuldnese groups. Since the Chinese
want a single association of all Chinese in Indochina without automat*
for groups from individual provinces, there have been strong protests
and considerable resentment. The Chinese Consul General in Hanoi has
maintained that this move is contradictory to a verbal promise made by
the French when they signed the Sino-French Treaty in February 3.94,6 to
the effect that the congregation system would not be reinstituted. The
Chinese Consul General predicts that friendly relations between France
and China will be adversely affected if the French fail to use diplomatic
channels to reach a settlement of this problem.
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smTron T11, =UST rrropTAN sivnrEs AND,ESTIVATES
Th Ilemeets for A Vnitpd :3taten or Indent:do
ionerlic in important toth and to 7ente.ra
.-kat(Tiztlo necosoary both ihs rehabilitation an.:
ts ecoluates of those countr5.os. 1r1.6 to the creation of .4t 2f
YTthi Am:topic matorialo. Pos!,dE7-rl being the pIi
.7,,hroe of oil, Indonesia prefteen 15,! of the worldon311'; t
:-ktural rubber, and MI nf itn ?Crol.mna bark.. Becaor:o thowl!s'
ch ettateFic materials, lo aa of Indonesia to Japan in 1142 ling
Celt by the Anion; in another war or in preparation for one, utiLit,Ation
or the whole Indonesian potential would be a valmmble at,
Dutch-Republican strife has, since the war, made Pull exploitation of
Indonesian raw materials impossible. Though future friction between the
two sides may not find expression in as mnoh violence as has been seen over
the past for years, ctntinuation of the underl7ing diongreetientowill inter-
fere with the availebility, of commodities from the proctive? arwio of Java
and Sumatra.
Development() in Indoneeia for a considerable period in the tare will
center around the formation of the United States of Indonesia (UST) as a
federal framework of government to be established in the territory of the
Netherlands Indioe and_the efforts of the Dutch on one nide and of the
Indonesian Republic on the other to realize in the UST the basic objectives
which have dictated their policies since the end of World Nhr II.
Dutch policies and actions will be directed toward the preser7ation
of Dutch influence in the archipelago and will therefore work toward neu-
tralising that of the Republic by attempting to confine the scope of
Republican authority to as small an area as possible and encircling the
Republic in a federation of proDutch states. Republican policies and
actions will be directed toward the replacement of Dutch influence in the
UST and its component states by predominant Republican influence and will
therefore work for the revival of its prestige, the rapid delegation of
Dutch powers to Indonesian governing bodies, the early creation of a
sovereign and independent MI, and the utilization of the federal structure
to Republican advantage wherever possible.
A prolongation of the conflict, which now appears probable, will delay
the restoration of political stability and the rehabilitation of the area's
-economy, and may enhance the possibility of a final outcome unfavorable to
the interests of the US. The achievement of stability and eccnomic rehabili-
tation.walld best be furthered by the development of the UST along a middle
course, affording expresion to Indonesian nationalism but permitting the
continuation of Dutch assistants() and guidance in Indonesia, Pursuit of
such a middle ((curse, however, is likely -to require the continuing influence
of third powers in the Indones i Doth the Dutch and the Reedblic?
111 o? "-
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MOTION III. DIGUST OP 11TOPTAMT STPDTES AND.P.STIYAITS
of Ind011FAa
Indonesia is important to the !In and to 7estorn 7ittr
of new materials necessary both to the rehabilitation and
the eccmomies of those countries nnd to the creation or s
certain strategic materials,. BeLdoe being the prine;pal Far 40
source of oil, Indonesia produces 3.5% of the worldin An, A%
natural rubber, and 90% of its cinchona bark. Because of the reed nt
sJch strategic materials, loss of indonesia to Japan in 1942'eas loren',7
felt by the Allies; in another war or in preparation for one, utilization
of the whole Indonesian potential would be a valuable asset.
Dutch-ReeUblican strife has, since the war, made full exploitation of
Indonesian raw materials impossible. Though future friction between the
two sides mgy not find expression in as much clearance as has been 00032 over
the past few years, ccntinuation of the underlying disagreements will inter-
fere with the availability of ccomodities from the productive areas of Java
and Sumatra.
'.114,te
Developments in Indonesia for a considerable period in the future will
center around the formation of the United States of Didonesia (u5/) as a
federal framework of government to be established in the territory of the
Netherlands Indies az& the efforts of the Dutch on,one side and of the
Indonesian Republic chilies other to realise in the PSI the basic obdectives
mhich have dictated their policies since the end of lorld War
Eutch policies and actions will be directed toward the preservation
of Dutch influence in the archipelago and will therefore me* toward neu-
trans*/ that of the Republic by attempting to confine the scope of
Republican authority to as small an area as possible and encircliog the
Republic in a federation of pro-Dutch states. Republican policies and
actions will be directed toward the replacement of Dutch influence in the
PST and its covenant statosbypredominant Republican influence and will
therefore work for the revival of its prestige, the rapid delegation of
Dutch peelers to /ndonesiangcwsrningbodiee the earky creation of a
sovereign and independent PSI, and the utilisation of the federal structure
to Republican advantage wherever possible.
A prolongation of the conflict, which now appears prebable? will delay
the restorationvf political stability and the rehabilitation of the meals
economy, and may enhance the possibility of a final outcome unfavorable to
the Interests of the US. The achievement of stability andscowls rehabili-
tatiorrwoold best be furthered by the development of the USI along a middle
course affording expresion to Indonesian nationaliam but permitting the
ccatinnation of Dutch assistance and guidance in Indonesia. Pursuit of
such a middle course, however, is likely-to require tho continuing influence
of third powers in the Indones .; noth ths Mato pro thou) R0114.0 4
qi a"
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on tho ot l'edr n ad will c ()aim? tho.tr offortn to divecr% t1,1.;N:-0(I?er
3nf3itonce in '6,1s.i diroction of tlIair respective oh,l, tiV :co the Dutch
bringing to bear their pocitim in Illsrore and the techr /cal advantages
they tan offer In devp.a.opinc tho Yndonenian eccnow while alleging
(;oracennist infiltration in tho riepal-olic, and tho 1",n1c,11