INTELLIGENCE HIGHLIGHTS NO. 38 2 February - 8 February 1949

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01082A000100020023-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 11
• Document Creation Date: December 9, 2016
• Document Release Date: August 17, 1998
• Sequence Number: 23
• Publication Date: February 8, 1949
• Content Type: PERRPT

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OFFICE OF REPORTS AND) ESTIMATES, CIA
FAR EAST/PACIFIG BRAT?CI
INTELLIGE11CE (HIGHLIGHTS NO. 38
2 February - 8 February 1940'
S121 AR'Y OF FAT EAST TRE"TDS AND DEVELOP113NTS
While press reports of "invasion" of South Korea were exar,geratioas of
another border incident, the Democratic Peoples' Republic plans a political
invasion of the south at the and of March when it will sponsor underground
elections there (pm 3)o Meanwhile, the UN Korea Commission facets the probW
lent of divided South Korean opinion on the subject of US troop withdrawals
(p. 4) o
In China, 1.1 Tsung-jen spent another week in futile peace efforts and
okayed CHIANG Chih-chung;Os negotiations with the ITSSR Which inay lead to complete
realization of Soviet ambitions in Sinkiang (p? 6). V:hile the issuance of
now regional currencies emphasized the ATationalist Government's disintegration
(p4 9)p Shanghai shippers took heart over the possibility of resumed coastal
trade yrith Communist-held North China go 9) CHEN Crteng., Governor of
Taiwan, appealed for continued US aid (p, 7) and Coir unists in Tientsin con-
fisoated US relief stockpiles (po 8), There was little military activity
anywhere in China.(p? 8)0
Ho Chi Minh ordered a general counteroffensive arainst the French in
Indochina (p0 4)p
In Burma, the dissident PVO group rallied to the Government side in its
present strugtle with the Karens, while C in C Smith Dun gave up his command
(p0 4)0
A now plan for settlement of the Indonesian dispute, which the interned
Republican leaders view with skoptioisri, has been advanced by the Dutch (p0 5
The-mrgina-1 notations used in succeeding sections o ' a 'ge y
("A", "$" or "C") indicate the importance of the items in B/FE opinion
with "An epresenting the most important?
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Ma
H e t3 ti 3 S Brut c On. 30 ) rah3
Northern Korea are scheduled to elect members to the township and county
Peoplecs& Committees for the first ti a Pyongyang radio's announcement
of the caning election stated that southern Korea will be Invited to par-
ticipate. 'Cndergrc and revival of Peoples s Co mittees in the South is
undoubtedly designed to continue the Soviet policy of creating confusion
.in the US-eponsared Republic and to erphaaize that the Democratic Peop]eus
Republic desires "unification" of the peninsula: despite 135 occupation of
the southern zone.
Peoples' Cown.ttees were organized throughout Korea at the time of
Japans collapse and were designed to farm the basis of an indigenous
Korean governments. They were the local organs of government and, in
USSR-occupied Korea, were recognized and utilized as the structure upon
which.to base the C iet regime, In US-occupied Korea, however, the
Committees were ordered to disperse and ill will against the US resulted.
At present, the Republic of Korea fills nearly all such local offices by
appointment and has no immediate plans for local election, Southern
Koreans still have fond memories of their dispersed Peoples, Committees
and nationalistic pride may well be aroused bar an effort to revive this
esper nt in self-governmenf, even if sponsored by the northern puppet
regime.
Press "U=1 2;: , ei,a is a aggerpt2 0 The west coast border clash head- "B"
lined last week as an invasion of the south by North Korean forces proved,
upon investigation, to be a small-scale affair. Since all US troops were
withdrawn from 38th Parallel outposts on 15 January, a number of incidents
have occurred. They appear to be small i l reconnaissance operations,
designed to discover South Korean unit strengths, locations and identities
and test their state of alertness, None, however, have been of invasion
magnitude - last week's affair included. Such reconnaissance probes can
be expected to continue,
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(Conte)
UN 9=91 m obi,, a. By 5 Februarys, an but two of the UN Kaaren
vaei7miasion delegates had arrived in Seoul. The Commission will confer,
with Republic of Korea officials before acting to 3mp18meant its mission
of unifying Korea and observing cr maldng reec mendations regarding the
withdrawal of foreign troops. Its work will be hampered both by the pro-
bable refusal of Democratic Peoples' Republic officials to deal with'the
Commission and by conflicting viewpoints as to its proper function a?4
actions in the south.
The principal southern issue will arise over the question of i-
drawal of US troops. President Rhee will attempt to obtain a Co i5sion
recd mestation in favor of continued US occupation. In opposition to Rhoe,
sn.maxy as 40 younger members of the National Assembly may follow the
lead of Vice Speaker Kira' Yak Soo in asking the Cor:ission to recaamnend
imanadiate withdrawal of US forces, Leftists in South..4orea, who hitherto
have been hostile to all. UI,T atteairpts to mediate in Korean affairs,,, may
decide to adopt a temporary line of ostentatious cooperation., in an effort
to convince the Ccxnmission that there is no danger of civil tsar and that
Korean unity can be peaceably achieved when US troops withdraw,.
V et~h_Zjgj= 23an An order for a general counteroffensive against
the French, issued at the end of January by Viet riinh Commander-in-Chief
Vo-nguyen-Giap, was confirmed by President Ho Chi Mirk following a recut
meeting with his ministers. In calling for redoubled'ei'forts to achieve
ultimate and total victory, Ho emphasized that French atrength must not
be underestimated. At the same time, Ho once more denied the French
allegation that he had signed a secret treaty with the Chinese Communists
in June 1940
Ra T ,12Z roues? Two significant developments in the Karen-Burman
struggle carne this week. First,, the Peoples2 Volunteer Organization (PVO),
which has been in armed rebellionain?st the Government since Ju]y, 194,
is emerging in increasing nuribers to assist Government forces in the
fighting, particularly in and arround to iaportant port of Bassein and
at Ins?in, 10 miles north of Rangoon. It seems like p thwa;, simile' action
has been taken by PVO groups throughout Lower Bun, and that other Bur-
mane.. Communists included, may disregard thew political differencea end
follow the lead of the PVO7 s in taking up aims against the Karens?
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BUi (continued)
Secondly, Lt. Gen,, Smith Dun, Burmese Commander-in-Chief has left
Rangoon for Kalaw, in Northern Burma, ostensibly on sick leave,, Smith
Dun, a Karen, has been replaced by Bo Ne ?`lip, a Burman and Left-"ling
Socialist, Smith Dunts departure will probably cause further Karen
desertions from the Burmese Arn r. Both these developments make the
possibility of a general, amicable settlement between Karens and Burmans
increasingly remote.
Ir!D(NESfA
Dutch resent new plan. A new scheme for the transfer of Netherlands
sovereignty to an Indonesian federation is currently scheduled for dis-
cussion on the Island of Bangka. The all-Indonesian meeting is supposed
to include Republican President Soekarno, Premier Hatta and a delegation
of Federalists, If the Bangka conference accepts the Dutch plan (Neth-
erlands relinquishment of sovereignty within two months to a "Republic
of the United States of Indonesia"), both Dutch and Security Council
timetables for elections and the granting of sovereignty would be con-
siderably accelerated.
Republican leaders, however, view the plan with skepticism, regard-
ing it as a Dutch device to circumvent the 28 January TIN resolution.
Until recently, they have declined to participate, as individuals, in
discussions with the Federalists, but have insisted that they be recog-
nized as representatives of a reconstituted Republican Governments
The Federalists, through whom the Dutch have attempted to win Repub-
lican support, have shown an unexpected independence of their own, They
have been reluctant to condemn the latest SC resolution and to commit
themselves to ar{r specific course of- action. Mile certain of the Fed-
eralists are avowedly pro-Republican, the great majority are anxious to
stall without committing themselves until it is clear that either the
Dutch or the Republicans will retain the balance of power in Indonesia.
CHINA
LI Taung :lent s continuing efforts to negotiate peace with the Com- "Br
munists appear to be facing diminishing prospects of success,. In addition
to the Communists' intransigence, there is a growing split within the
ranks of the National Government over whether or not? to continue negotia-
tions. Premier STZ! Fo in Canton has declared that the Government will
fight on if honorable peace negotiations fail. The Cabinet, which has
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given LI'little support, has departed from Nanking and refuses to comply
with LIks request to return. LI fears that the Generalissimo also is
attempting to sabotage his peace efforts, despite reported assurances
from CHIANG of his continued support? While it is to LIBs personal
advantage to continue negotiations. few Nationalist officials are likely
to accept any binding peace commitments LI might make with the 4Comm
munists.
Sinkjan to become Soviet buffer. Soviet Ambassador Roshchin's
Transfer to anton, and CHANG hih-chung's mission to Tihua, may be
related in a Soviet maneuver aimed at consolidating Soviet control in
Sinkiang, thereby realizing a strategic security objective of the 'JR,.
For the past year Roshchin has been identified with the prospect;
of Soviet mediation in the Chinese civil war::. Last month, when the
USSR formally declined to mediate, Soviet sources confirmed reports
that Roshchin would leave presently for Moscow, Last week, however,,
Roshchin followed the Chinese Ministry of Foreign Affairs to Canton,
the only Ambassador to do so. It is perhaps implied thereby that Roshchinhs
mediation mission also remains, or that the USSR desires the Chinese
Government to believe that Soviet mediation is still possible. More-
over, the Chinese Government organs now in Canton are the proper
authorities for ratifying international agreements.
It is probable that the USSR does not desire a strong China . even
a Communist China - on the Soviet borders, and therefore is seeking
to form a buffer area through Manchuria, Inner Mongolia, and Sinkiang.
The Sino-Soviet Treaty of 1945 provided for a strong Soviet position in
Manchuria; although MAO Tse-tung stated publicly his desire that Outer
Mongolia be restored to China,, that area became a Soviet satellite, and
may draw Inner Mongolia into its orbit; and now the Soviet position in
Sinkiang should be greatly strengthened by the "local agreement" which
CHANG has gone to Tihua. to negotiates
The agreement reportedly would grant the Soviet Union mining, trade
and aviation monopolies in Sinkiang for the next forty to fifty years.
The mining monopoly would give the Soviets full rights to exploit Sinkiang's
little-known resources of oil, wolfram and gold. Oil deposits in Sinkiang
are rumored to be sufficient to supply the entire Scviet Per East,
though this would require many years of development. the mining monopoly
would also make possible Soviet exploration to check on unconfirmed
reports of uranium in Sinkiang.
A Soviet trade monopoly would provide for exchange of Sinkiang"s
.raw materials, principally wool, for manufactured goods from the USSR
In addition there would be a new civil aviation agreement renewing the
virtual air monopoly held by the USSR under the Sino-Soviet Aviation
Agreement which was denounced by China last September:,
CHANG's mission might well prepare the ground for making a Soviet
satellite not only of all Sinkiang, but perhaps of parts of Ningxia?
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Chinghai, and Kansu. While the Sinkiang provincial government has long
.desired resumption of trade with the USSR, the present Chinese Govern-
ment would seem to have little to gain, in that its life expectancy is
.certainly not the 40 or 50 years which the Sinkiang pact onvisagea.
Thus the Chinese Government may be seeking, in return for approval of
the "local agreement," a leans for preserving its own life: specifically,
by Soviet mediation in the civil war. It is improbable that the USSR
will or can mediate successfully to that end; but the USSR could easily
promise to attempt it, and Acting President hI Tsung-jen appears sufficiently
naive and desperate to accept such a promise.
The Chinese Communist radio has not yet mentioned the Sinkisxig
negotiations. Tihua, however, is one of the 16 major centers to,s hick,
according to the Communists, the Peiping surrender formula will be
applicable. Thus the proposed "local agreement." if it were to remove
Sinkiang from the eventual control of the Chinese Communists, would
seem to qualify as one of the "traitorous" treaties which the Communists
have denounced. It is therefore possible that the USSR and the Chinese
Comzatnists are plotting this maneuver in concerts i.e., that the USSR
will promise to attempt mediation, will additionally promise CHANG and the
Moslem governors of Ningxia and Chinghai that their authority will be
preserved, and will then allow the area to pass into Chinese Comoanist
control. It seems more likely, however, that the USSR, if not seeking
direct control of a Northwest 'autonomous" regime, is at least seeking
a position strong enough to permit the Chinese Communists to enter the
Northwest only on USSR terms.
The participants in a Soviet Nationalist agreement, if the
Chinese Communists were genuinely excluded from it, would obtain widely
varying returns: the USSR would get Sinkiang; the Chinese Government
a sack of wind; O.HANG a comfortable berth, subject to sudden relocation;
and the Moslem leaders continued, although insecure, authority.
The Chinese Communists would be confronted with a serious dilermma:
whether to accept in silence this major loss in territory and face, as
was the case in regard to outer Mongolia, or to denounce the agreement
and attempt ?- with their increased strength since 1145 to rectify
it, in which case their relations with their one important international
friend would be severely compromised. While a Soviet maneuver in denying
the Northwest to the Communists or restricting their authorcty therei.n
would certainly increase the chances for Titoism in Chinas the Soviet
annexation of the border re4ions would make the fact of Titoism, if
it does appear in China, less dangerous in its effects upon the USSR,
Taiwan Governor bids for US su ort. In an apparent effort to
obtain h good will and support, through ECA and other forms of aid,
Governor CHEN Cheng has indicated to US officials he intends to develop
in Taiwan an autonomous, anti-Communist administrratian, which would be
independent of mainland China. His known loyalty to CHIANG Kai-shek and
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the latter:s careful preparation to make the island his final stronghold
belie CHEN's claim that circumstances do not permit CMANG's return to
power, even in Taiwan, Moreover., CHEN's ruthless character and his
previous record in military and provilial administration fail to sub?-
atantiate his promise of a competent and popular regi.me~ Also interesting
to note are recent public statements of CHANG Chun in Chungking and
XSUEU Yueh in Canton, similar to those of the Taiwan Governor, regarding
the prospect of CHIANG's return. Alttxaargh these statements may partially
reflect personal views, it is likely that they constitute maneuvers
for US aid and may even have ttc; rmcit approval of the Generalissimo.
Inactivity characteri w military situation,, This week the Coma. "Aar
monists continued to mass theirT columns in az- area above hdriking from 'phi cq,
they can easily move southward across the Yangtze and occupy the
vital cities of the Yangtze delta when the Nationalists complete the
evacuation of those points? The exact intention of the Nationalist
commend, which at present lacks oven a semblance of cohesion,, is difficult
to establish. Some reports indicate Nationalist com:,.Mt forces have
been wi.thdrawan from the Nankixig 'Shanghai area, while others state
this movement haas included only eer.ice troops, Another report notes
that TANG En-pots command--a maximum 150,000 strong--has been tendered
defense funds .by Shanghai groups in the expectation that these forces
would be employed in the defense of that metropolis. Still another
report expresses doubt the the bulk of the city's populace wish to see
that city envolved in any future fighting. It is probable that the
great majority of the Nationalists, civil and military alike, have little
faith in the success of LI Tsung-fen's present pence overtures:. To
the north the Communists celebrated their cleanup of North China by
holding a big "liberation? cele~)ration in which conquering Communist
forces paraded in ? ,hhe streets of Peiping. US observers report that the
armaments of the troops which entered Peiping was predominately Japanese
with a heavy proportion of automatic weapons, some had US Tommy guns
caroines, and artillery, the motorized equipment was US made, and that
the troops themselves, dressed in a conglomeration of uniforms apps read
to ire in good condition,.)
Comminists confiscate ECA. food at Tientsin. The Communist hove
in abruptly terminaati ng the-Tientsin food ration. program by egonfiscation
and distribution of ECA flour stocks appears to have been shortsighted.
The chief repercussion may be as food shortage accompanied by eratic
prices until the harvest season. The Communists have not been sufficiently
aware that feeding the 2-3 million people in Tientsin and its environs
entails large-scale food imports and an efficient collection and dis?.-
tribution organization. Primarily because of ECA. the people of Pei.pi.ngg
and Tientsin' have become accustomed to a sufficient amount of cheap
food during the last six months; if the Communists are unable, by transfers
i doff' It
b
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from food surplus areas, to meet this standards, It will
to justify to the people their hostile action toward ECA0
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Local currencies are emerging throughout non-Communist China. In
consequence of increasing; economic isolation Hunan Province issued a
new currency this week called the silver yuan. At Hank= Pat Chung-hsi
expressed his disgust with the defunct gold Yuan by authorizing free
circulation and bank acceptance) of silver dollars.in Hupeh Province,
The Taiwan provincial government has banned all remittances of gold Yuan
from the mainland because of its worthlessness and inflationary effect,
The 500% depreciation of the gold yuan this week plus the departure of
most of the Central hank except the currency issuing department for
Canton will force the emergence of many other local currencies. The
possible abandonment of the gold yuan by the Canton refugee governi sent
is reported by a Hong Kong Coimnuniat newspaper, which claims that a
"Four United Provinces" currency has been printed in Hong Kong (presumably
to cover Kwsngtung, Kwangs i , Fukien and Kiangs i) .
The possibility. cif coastal trade between Slime giai and North Chinet
developed this week. The Kailan Minin Adminictraticri in Cormraunist
North China has arranged with Central Trust, a subsidiary of the Central
5inky to exchange 100,000 tons of Kailan coal for 300f,000 bags of
Shanghai. flour. Economically, the exchange is ideal since coal is
plentiful in North China and scarce in Shanghai,. and the reverse is
true of flour The Kailan Mining Administration has assured the
ships' entry and clearance at Chinwangtao if they fly only the Kailan
house flag.
Shipping circles throughout the Par East are anxiously awaiting
the reopening of. Communist ports in North China to orci ;n and coastal
trade. The American ship, President Fillmore, has received word from
Peiping that arrang ents for unloading its carge at Tangku have been
made. In face of foreign competitions the Executive Yuan finally approved
Chinese shipping to Communist destinations.
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