INTELLIGENCE HIGHLIGHTS NO. 37 26 JANUARY - 1 FEBRUARY 1949

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01082A000100020024-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 12, 2016
• Document Release Date: June 13, 2001
• Sequence Number: 24
• Publication Date: February 1, 1949
• Content Type: PERRPT

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SECTION X. SWZIARY 0? FAR EAST MIMS AND DRY AR=78
defense line to be set up south of the Yaartee river (paps ). ; The
appears to have taken place and been promptly put dog (page 8).
This week the Obinese Nationalist High Oommand laid Mike for a new
The aid-January uprising in North Korea (Intelligence Highlight* No. 34)
sterling bloc trade ar'reement (page 2).
HATSMW0, head of Japan** 'Outcast" class has been purged, an act
which may allow Cossa*ni.st exploitation at these million-odd ,socially
sti eati sed Japanese (pt-ge 2).
Financial circle. in Vaisya are voioiu complaints over the small
proportion of Japan... innorts earmarked for that area under the .w Ja *n>
Tbunge,
(page 4).. The Chinese Coeennist Party increased its ddb cm lI
3en's foTwnment and outlined its plants for a sonal peace ihtiroughout.
!rationalist' China (page S) o CBABG Chi,h?ahnng departed for, Tibia reportedly
to negotiate a a8R-4inkiang trade past (pagep 5),
The Karel Burman conflict, which has spread throughcu Lower Burma,
appears now to have reached the pitch of full-scale race carfare (page 7).
principal bureaus and ?Ministries of the National Govern nt'announaed their
removal to Canton (pace 4). Native Taiwan leaders warned Ue, officials
of a coming revolt on the island as economic conditions there worsened
Reaction In Indochina to the current negotiations between the Pftnob
Goveraawnt and the former Atn ami is emperor Hao Dai in Paris has ranged from
indiffersne to hostility (page 7) e
marginal rota tine used Iii suoosedir, sections of 1is wakly
with "A" representing the most important.
("A", NEW or "C") indicate the importance of the items in W /n opinion
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SECTION IS. DEVELOP ErTS IN SPECIFIED AREAS
I -le ra. mute re trade with
Disappointment in Malaya'e share of the trade arising out of recent
agreement between Japan and certain parts of the sterling area has been
voiced by the financial editor of The Straits Times, The financial editor
believes Malaya is being discriminated against, because it can import
only a small part of the cheap Japanese goods vhioh it needs to lower its
high cost of living. In return, its exports to Japan are of such volume
that, in addition to building up the British Empire dollar pool. Malaya
will be furnishing sterling or its equivalent in goods with which the rest
of the Empire nay purchase cheap Japanese goods.
Already, restrictions are being placed on Malayan inports from Japan.
During the month? when operations commenced, Ua,layan importers sought
permits for over $11,500,000 worth of goods-monosodium glutamate, agar--
agar, canned sardines, cuttlefish, clocks, glassware, canvas shoes, menthol
crystals, porcelain ware, and toys, To date, no permits have been issued.
Japan will procure much-needed oomnodities from 1alaya--.rubber, tin,
sago flour, iron ore, coconut oil,. and other Straits produce. During the
first month of the agreement, Japan had bought $9 million worth of such
commodities, mainly rubber and sago flour. Before the war, Japan was the
largest Far Eastern market for Malaya's rubber and tin and took all of
Malaya's iron ore and manganese ore. Japan's chief export in return .mss
cotton piece-.goods. During the past two years, US cotton goods dominated
lialayats markets, If, under the new sterling area agreement, a large part
of the textile. quota is allocated to Japan. M. exporters may be expected
to complain.
Fur of "Outcast" leader. On 24 January the Attorney General's office
announced to purge TSUMOTO Jiiohiro, Vice President of the Japaneso
Diet's upper house, on the grounds that he was an executive member of
the Daiwa 21ational service ?Tovement headquarters, a wartime nationalist
society. Ui'1'SUi0TO, a leader of the left-wing clique of the Socialist
Party and one of the party's four advisers, is the unquestioned head of
the Eta or "Outcast" class in Japanese society, a class estimated by the
Japanese C,overnment to number one million and by their own leaders as
three million, It is anticipated that the purge will have wide political
repercussions,
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Announoement of the.aotion was obviously delayed until after tho 1949
general elections, No official explanation has been given for the failure
to purge UATS110T0 prior to the 1947 general elections, in which he
received the second largest number of votes received by any candidate for
the House of Councillors, the Diet's Upper Rouse.
The socially and economically stigmatized Eta "Outcasts" should be
"naturals" for Communist equalitarian propaganda ?but JCP efforts have
been without evident success to dates In the 1947 elections, for example,
the Eta class supported the Socialists, due to MATSTJ 0T0's leadership.
With MAT81I1OTO purged, the Communists may succeed in guiding the political
activities of the Eta group in the future.
North Korea u risi uelled in earl sta esb Reports indicate that an 'P13"
uprising began on-19 January 1949 and continued through 22 January in
Haeju,, a vast coast port town located just north of the 38th parallel,,
Early enthusiastic statements by officials of the Republic of Korea told
of large fires and shooting. Radio Pyongyang announced arrest of terrorists
sent to Haeju from South Korea, with instructions to atterpt,on uprising,,
thus substantiating the fact that some disturbaftoe had occurred in the city.
It is now accepted that rioting of local nature, which failed to achieve
any measure of momentum, broke out in Haeju but t quickly brought under
control'by authorities of the puppet Democratic People's Republica Although
South Korea's Premier, Lee Hum Suk, has categorical) denied an com lioity
25X1C in the attempt to engineer uprisings in the North, 25X1C
indicate that some Republican Government personnel were
involved in the abortive Haeju riot0
Nationalist plan "new" defense line? As the Chinese ~'om?tunist armies "A!"
continue to move into posit ion along the north bank of the Yangtze from
Yuhu to the Grand Canal, the Nationalist High Command it Nanking started
withdrawing troops southward from its "impregnable" Yangtze defense line
and is now preparing a new position along a general west to east line
running Wuchang-Nanchang.m>Chientang River. This defense plan reportedly to
be implemented if current peace negotiations fail,, will result in the
complete abandonment of Shanghai, Nanking and Hankow? It is therefore
anticipated that these cities vA ll come under Communist control within the
next 30 days.
This latest defensive tactic appears to be a Nationalist stall for
time, allovdng the CGvcrnrnent to preserve its remaining men and equipment,
to avoid any further "shooting--.?rar" and to await the possible renewal or
US aide The withdrawal probably sets the stage for the next act in China's
CN
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civil war extravaganza--"The War of Movement." The Nationalist forces
will probably make a series of "strategic withdrawals" through ouch
"paper" defense zones, which will be "vigorously defended" until the
Communist Armies approach them.
National Government )loves to Canton. The Communist military threat
to Nanking and the deadlock in paste negotiations have resulted in re-
moval of the Nationalist capital to Canton, where the Government has
announced it will be open for business in its new location on 5 February.,
Although the transfer is relatively complete (with some Government unite
going to Taiwan. Foochow and other points) to that few Government resources
will be left in Nanking for the Communists,, abandonment of that city is
a heavy blow to Nationalist preetigea In the lower Yangtze, the National
Government gives up its political stronghold of the past two decades
and departs for as area where local political elements are largely
unfriendly or strongly antagonistic. The western powers' decision to
keep their ambassadors in Nanking, at least for the immediate future,
which suggests the possible future recognition of a Chinese Communist
Government, is an added blow to the retreating Nationalists.
"3"
LI Tsun en loses political support. Besides the various difficulties
attars sg the removal of tGovernment from Nanking, Acting President
tI hp,a been losing political support from both the Right and the Left,
His attempted reforms and peace moves have occasioned the resignation
of CHP.N Li-fu and several other Cabinet members. The other members
have all left Nanking for various locales in the south and west. while
LI at present remains in Nanking, he will probably depart in the near
future for Canton.
While relatively few prominent Nationalist leaders are likely to
remain under 0ommunist rule in the Nanking area, the harshness of
Communist peace tactics will tend to bring greater unity and cohesion
among those Nationalist officials who cannot accept Communist tutelage
or make a bargain with the Communists.' In maintaining further resistance
against Communism, the National Government will continue its efforts
to obtain foreign assistance and support, which more than ever will
be essential for its survival.
"B"
Native Leaders warn of corm uprising in Taiwan. Exiled leaders *A:
77-
of the Formosan ague for e--emancipation have stated that the native
underground revolutionary movement may be manifested shortly in an
outbreak against the mainland Chinese in Taiwan, despite recent strengthening
of =National Government forces on the island. Although there is little
evidence to suggest that such an uprising would seriously impair the
Government's position, popular resentment and frustration may result
in acts of violence and sabotage in the next few weeks. Taiwanese leaders
are seeking to influence world opinion and especially to gain US good
will and support for their anti-Communist, pro-American program of
independence from China.
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Meanwhile, the disruption of Taiwan's eeonony by the influx of
governmental and other refugees from the mainland continues. Perhaps
as many as a million people have fled to Taiwan and the GovernorsGen.
CHEN Cheng,has stated that a million more are expected. The island
is-already experiencing increased inflation and a shortage of rice and
other coum odities due to overpopulation. The almost complete diversion
of shipping from trade to the evacuation and support of the Government
and official families will further depress Taiwan's economy. The
"industry" so far shipped to Taiwan is mostly arsenal equipment from
Uankow. Nanking and Tsingtao and if put in operation, will only drain
Taiwan's limited power and other resources to the detriment of Taiwan's
normal industries. Although the presence in Taiwan of extensive Nation-
alist gold reserves might tend to stabilize the currency, the gold is
not there for Taiwan's benefit, but as insurance for the remainder
of the Nationalist Government.
Negotiations for renewal of Sinkiang-Soviet trade. CHAAIG Chih-
ohung, top official for Northwest China, has left for Tihwa to discuss
a trade agreement with the USSR, according to persistent reports from
Nanking. Acting President LI Tsung-jen and Premier SUN Fo are said
to have okayed such a pact, which would authorize resum.p'tion of trade
uncompromising completion of "the revolution" and liquidation of political
organizations outside the Communist fold. Moreover, a recent statement
of the National Government and the deadlock in bargaining with the
Chinese Communists. CHANG immy hope to establish a domain for himself
in the Northwest by entering into an arrangement with the USSR for
sharing the benefits of Sinkiang
Dissidents endorse Communist program0 Recent "declarations" of
13arshal Chi-shen and her dissidents presently in Communist areas
of China strongly have supported current Communist demands, such as
between the USSR and Sinkiang Province, officially suspended since 1943,
Such an agreement will doubtless include major economic concessions to
the USSR, and is likely to grant privileges similar to those exercised
during the SSG Shih-tsai regime (1933-1944), when Sinkiang was virtually
a Soviet satellite state. In return, the Chinese may hope to receive
a promise of Soviet mediation is iationalist-Communist negotiations.
The Chinese have been trying to arrange Sinkiang-Soviet trade
negotiations for over two years, but until recently the USSR has consistently
stalled them off, perhaps with the idea of extracting greater concessions
at a later date. Conclusion of a Nationalist-Soviet agreement on Sinkiang
at this juncture would indicate that the USSR desires to preclude
Chinese Communist control over an area regarded as strategically vital
to the USSR.
CHANG Chih=-chung recognizes that a renewal of Sinkiang-Soviet trade
is vital to the success of any Sinkiang regime. In view of the collapse
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identifies SUN Yat-sen's Principle of the People's Livelihood with'Com-
Ymmism. Such pronouncements indicate that the dissidents have abandoned
completely the traditional liberalism of the Democratic League and other
minor groups and have thrown themselves into the arms of the Com-
munist Party. This fact will limit the effootiveneae of their efforts
to win over non-Oonm.nist Chinese to a "coalition" government under
Communist leadership. It appears likely the dissidents will lose
support of same of their own associates and sympathizers who are unwilling
to go into the Comvaunist camp under these circumstances.
Cunene C ste increase demands map zonal eece. The Chinese "A"
Commntniste this week demanded that realization of se-tung's
eight points occur before the start of peace "negotiations.," Additionally,
they called upon Acting President LI Taung-jen to arrest and deliver
to them President CHIANG Kai-shek and all other "war oriminals,"
including Gen. Okamura, onetime commander of Japanese forces in China,
whom the Nationalists recently acquitted of war guilt. LI could not
,possibly comply with these demands. in their entirety, even if he
wished, and the intransigence of the Communists has led to a general
recognition that in effect they demand unconditional surrender.
Communist inflexibility might appear to be a serious political
error. A milder policy would have strengthened the Communist claim to
be the 'peace party*, gained for them the services of some Government
leaders and simplified their problem of obtaining international recognition
as the legal Government of China. Actually, the Communists have lost
little or nothing by their severity. They can and will claim that LI's
Government has frustrated peace efforts by running away to Canton. that
most Government leaders are "war criminals" for whom there would be no
place in a Communist-controlled regime, and that Up in the absence of
CHIANG Kai-shek, has no authority to surrender the 'National Goveinmexit'
to the Communists. The Communists realize, moreover, that the decision
of foreign governments to leave their ambassadors in Ranking implies
the possibility of eventual de ure recognition of a Communist-controlled
government.,
There is no single authority, CHIANG Kai-shek included, who can
deliver intact to the Communists the remaining anti--Coaxaunist forces in
China. In this light the Communists quite properly regard the Nanking
Government as a mere regional regi.e, controlling only one or two of
the principal centers of resistance. They have announced therefore that the
pattern established by the surrender of Peiping--gradue.l Communist occupation
of the city as Nationalist forces withdraw and lay down their arms-will
be applicable to 18 other major centers: Nanking, Shanghai and Hangohow in
the east. Taiyuan and Sian in the north. Kueisui. Lanchow and Tihua
in the northwest,, Chengtu and Kunming in the west and southwest,
the southern cities of Changsha, Nanchang, Foochow and Canton, and the
island of Hainan as well as Taiwan where CIILANG Kai-shek intends to
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make his last stand
The Peiping formula gives the Communists the double advantage of
peaceable occupation of areas of resistance and sufficient time to
staff Communist administrations for such areas. The Communists will
continue to plan their "coalition" government for all China->-excludbag
CHIANG and his associates but perhaps including those Nationalist leaders
who assist the Communists in their occupation of the 16 centers.
The "coalition" government,with Peiping as its capital, will probably
be proclaimed at some time after the Communists have extended their
control over more than half the territory and population of China and
will then seek international recognition as the legal Government of
China,
INU-....CCHINA
Little faith in Bao Dai plan exhibited. Reaction in Indochina to
the current negotiations between the French Government and the former
Annamite emperor Bao Dai in Paris has ranged from indifference to hos-
tility. The Vietnamese press in the French-controlled areas has been
particularly skeptical and has stressed the disunity among French parties
and the divided French attitude towards negotiations with the Vietnamese
Government led by Hoooow-trained Ho Chi I:iinh. Some observers excused
Bao Dal's hesitation to accept the leadership of a Vietnamese regime
without detailed agreements from the French on the grounds that the
French Government's division and uncertainty on its Indochinese policy
could not inspire confidence. One usually-rightist French editor in
Saigon', who reflects the local colonialist viewpoint and who has been
vehe -ent in his denunciation of the Bao Dai Xuan plan to end hostilities,
iisists that the return of T3a? Dai will not solve the Pranco-Vietnamese
problem, since the ex--emperor will not have sufficient military power to
combat the growing strength of the Ho Chi I:tinh Government. Since this
editor predicts eventual failure for a Bao Dai regime, he considers
either the use of substantially increased military force or negotiation
of the best agreement possible with Ho Chi r:'inh as the only alternatives?
Even French officials in the area, although professing to favor the for-
mer emperor's return, believe that Pao Dai cannot immediately end the
fighting, a fact which they feel may later have an adverse effect upon.
public opinion in both France and the United States. This lack of con-
fidence in the Bao Dal plan on the part of both French and Vietnamese in
Indochina will hinder the implementation of any treaty which may be
signed in the near future.,
BTTRI'A
Karen-Burman strife greatly increased, The I noon Bu ynan c ceifl.ict,
F^
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PTI .(continued)
which has spread throughout Lower Burma, appears now to have reached the
pitch of fully-scale race warfare. This increasing strife is by far the
most acute problem facing the seriously-weakened Burmese r ernment. In
what seems to be a coordinated plan, the Karens are fighting for possession
of several important towns within a radius of 150 miles of Rangoon, in-
cluding the Port of Bassein? ?Zany Karen and Burman villages have been
destroyed and in several cases the inhabitants slaughtered, Burman
refugees are streaming into Rangoon, while Karens are fleeing the capital..
Karen troops are reportedly deserting the armed forces. They are ea-pected
to continue defections as the fighting becomes progressively more vicious.
Although peace talks are now said to be under way between Prime Ciro-.
Teter Thakin Nu and Karen leaders, there seems to be no likelihood of a
reasonable and'lasting settlement between Karens and Burmans in the fore-
seeable future, Prime linietor Mu, who in the past has been c one iliatory,
may offer substantial concessions to the Karen insurgents. It seeds most
unlikely, however, that Nu will grant the paramount Karen demand--form -
tion of an autonomous Karen State which would include areas where Buxmana
outnumber Karene by as much as 3 to 1.
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SECTION III, DIGEST OF IMPORTANT STUDIES A11D ESTI1!ATES
TIlE fP CT OF A C(I11NT?IST VICTORY IN CHINA 11PO17 INDOCHINA
toil JMBUM, 15 cem er MA)
The imminence of a Communist victory in China makes a solution of the
military. and diplomatic struggle in Indochina more urgent than ever. The
Vietnam Government is gradually increasing its military strength relative
to the French. Without foreign assistance to either ' side, the Vietnam
Government may force the French to withdraw from all of Tonkin,, except
Hai,phonf, and the coal ports,, by mid-194%. and later from all the Annamese
areas. The French have come to a general agreement with Bao Dai that he
should return to Indochina as constitutional monarch of an autonomous
Vietnam within the French Union. Bao Dal has refused to return without a
treaty detailing; French-Vietnam relations in all fields. If by some unusual
maneuver the French Parliament were to change the status of Coehinchina and
sign a treaty granting genuine autonomy to Vietnam through Pao Dai, a
necessary part of the`treaty would have to be a provision for the severe
limitation of French forces in Indochina and restriction on the police and
military'aetions of the French. It seems likely that were Tao Dai to return
to'Indochina under these conditions, he would find that the only effective
military force in Indochina belonged to the Vietnam RRenublio and he would
have to come to terms with that Republic in carder to maintain himself in
power. Some sort' of a coalition government between Bao Dat and No.Chi-Minh
could therefore be anticipated,, and in effect the French would have been
coming to terms with Ho.
If the war between Vietnam and France is concluded before the Comm. niste
achieve their victory in China, the deep-seated Vietnamese fear of the Chinese
should be a powerful influence toward resistance of Chinese Communist pene-
tration* In fact, a Vietnam Government in Mich Communist influence was not
dominant would probably welcome American assistance in an effort to contain
the Chinese Communists on the Tonkin border. If, however, the war is still
continuing when the Communists consolidate their control in China,, the
Vietnam Government whatever its political complexion,, would accept assistance
from the Chinese Communists. despite popular fear of the Chinese. Assistance
from the Chinese Communists not only would hasten the sticdess of, Vietnam in
forcing the French to withdraw from Indochina but also would materially
strengthen the Communist elements within the Vietnam Government, possibly to
the extent that the anti-Communist and anti-Chinese groups now influential
in the government would be powerless,
The Ho government is willing to negotiate an agreement with France on
the basis of the Accord of march 1946 and the September 1946 modus vivendi
and would accept the assistance of a third party or the United",, ions n
such negotiations, Since it. is confident of its military strength, it would
not agree to a military truce until convinced that these basic principles
have been agreed to in Food faith by the French Government. A Vietnamese
Government friendly to the West can best b cared thromieh an agree +ent made
bLWE-1-
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