OFFICE OF REPORTS AND ESTIMATES, CIA FAR EAST/PACIFIC BRANCH

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01090A000400060007-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: November 16, 2016
• Document Release Date: September 28, 1998
• Sequence Number: 7
• Publication Date: June 7, 1948
• Content Type: REPORT

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OFFICi OF REPORTS AID I;STI''TES, CIA
tAR AST/PACIFIC BRANCH
I11TELLIGIsNCE HIGHLIGHTS NO. 4
OF 1 JUNE - I J MM 1948
25X6A r ION I. SIW .ARY OF FM EAST TRENDS AND D VILOPEIENTS
If Rhea Syagman is able to maintain his present dominant position in
S ':xth Korean politics his warned personality and the actions of his unsavory
a-uaciates ray jeopardize the life of the infant 13tional Korean rovern-
mcnt (page 4).
Chinese Ttionalist circles in Shantung reportedly consider the sit-
uation there hopeless. Parrinp an unforse?n and basic reversal of. Central
Sovornrlent policy toward Shantung and its provincial leaders, or direct
U:-i aid to that area, the nossi'.4ility that the Nationalists can maintain
control of any of the province (except the port of Tsing;tao) is' becoming
remote (page 6). The growing trend of anti-US feeling in China, spear-
headed by student agitation against US Policy in Japan, continues (page 6).
The US delegation of the UN Good Offices Cor.Tmittee in Batavia is
currently making recommendations which it believes .,-ill protect future US
ooonomio interests in Indonesia (page 8)e
The inauguration at Hanoi on June 5 of the new Provisional Central
Government of Vietnam was completed in an atmosphere of extreme tension
slid elaborate security precautions and emphasizes the tremendous gulf
between the newly created government and the peoples under its jurisdiot3,ss1
DOCUMENT NO.
NO CHANGE IN CLASS.
[ I DECLASSIFIED
CLASS. CHANGED TO:
NEXT REVIEW DATE:
AUTH:,rH~F i
DATE. A:P REVIEWER: 372044
dy i
(1) An asterisk (a) - To indicate that all or part of an
i.tent is based solely upon inforrm+a.tion from State's
distribution" series.
(2) "A", NB", or "C" .?.- Importance, in BJF ,'s opinion, of
the item- with "A" representing the most important, ones,
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NOTE% In succeeding sections of this 7:eekly, the following marginal
a .otations are used
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3ECTlOW II. DEVELOPLThTS IN SPECIFIED AREAS
OE1 1AL
iiruFe ' Mission recommends minimum reparatione
he recommendations as to the extent of reparations removals contained ?B"
.ra i-A 26 April 1948 report of the "Johnston Committee" (the group headed
,,y bylersearetary of the Army Draper) are even more lenient than those in
the 20 February 1948 report of Overseas Consultants, Inc. (see YEA weekly
C-19 April). Both Reports in effect advise against the removal of prod'.
is ti.ve facilities (except primary war facilities) which might effeotively
'10.!tribute to Japan's production and potential trade. However, the
,,.ntra n Report reoommnends that "only those primary war facilities in
government-owned arsenals should be made available for reparations whereas
the Overseas Consultants, Inc, had included privately owned primary war
facilities in their estimatese
The following table compares the recommendations as to reparations
removals contained in the two Reports:
TABLE: Recomnendations an to capacities (and values) of removals for
reparations.
apaoi~yi
VALUE;
(-ta tons)
for Reparations
(thousands 1939 yen)
O.C,
Johnston
0.0.
Johnston
Nitric Acid
7etrio
107,000
82,000
9,648
8,000
Synthetic Rubber
1 trio
900
750
10,236
10,000
Shipbuilding
Gross
385,000
152,300
118,138
50,000
Aluminium & Magnesium
Fabricating
tetrio
50,000
50,000
21,688
21,688
?Magnesium Reduction
Metric
480
480
12,559
12,559
Primary War Facilities
o
1,4`155,-887
560,000
1,648,156
662,247
Other recommendations made by the Johnston Committee are :
1. Japans morahant fleet should be substantially enlarged.
2. Japanese trade with the prewar (nearby) markets should be
encouraged.
3. Foreign trade, now carried on almost exclusively on a
government-to-government basis, should be returned to private
channels as soon as seasib, a
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4. Policy should be directed toward the establishment of a
definitive exchange rate as soon as monetary and economio condi' .ons
become sufficiently stable.
The present exchange rate of fifty yen to the dollar (the
"military exohanr a rate") should be modified to reflect nore nearly
the relative purchasin ; power of the yen.
Foreign private investments in Japan should be encouraged.
A" 1- 16 Lai
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N3N
The ez atenae of the 99MMI to -WANJdaham In ~A -,Ydn -M
no 1} Qu if no -amn 1 g. fa -221ze mct ye 0=10L.
Regarding himself as the chosen leader of the Korean people' Rhee is
obsessed with a deal" for personal power. Although his success in
obtaining this power is far from assured$ he has acted since the elections
as if his direction of the affairs of the new state required mere formal
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KOREA _ (Cont.)
confirmation and as if he were not aware of`
3a'odc opposition to his future
8e has already stated privately
that he will. accept vs
military and economic aid but only on his own tem.
R5gs adherence to this stand sight well imperil the operation of nay
i iti re 'US aid program. Rhee's vanity also makes his fair gams for celf-
seeking Korean and t political adventurers and Z/S "empire-buildersr
interested in obtaining "oonoessions" for the exploitation of torean
markets and resources. loreaver, with Rhea in control, the new govern--
ment may be denied the services of mar of the scares high-level native
administrators and technicians in South lam. lack of anpr 12 guarantees
of support for the South Korean regime against probable North Korean
aggression and knowledge that there is no place for them under Rhee may
cause wjW moderates and non-partisans, now occupying responsible
Interim Government posts, to oppose the government or to refuse to asso-
ciate themselves with a regime which is morally and physically incapable
of opposing an ever-present Communist menace.'
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WRM t, his ~eg+ emerged as a ma ior--th~~ Rter of Chinese mUitar_,_,~ "A"
Ab
acuity. Communist units from the Wsihsien area, from north of the Yellow
River, and from the Central China sector are gathering in southwest Shantung
and along the Ronan-Anhwei-Kiangsu border, west of Heuchou. Action along
the Tientsin,-Pukou rail line from that city to Tsinan, Shantung provincial
capital, has resulted in Communist interdiction of the railway above and
below Tsuyang as well as in the capture of Taian and Tawenkou, important
rail tor. Nationalist circles in Shantung reportedly consider the situa-
tion hopeless and despair of any amicable and mutually helpful relatiors with
Tanking. Barring an unforeseen and basic reversal of National Government
policy toward Shantung and its provincial leaders, or direct US aid to the
province, the possibility that the Nationalists can continue to control any
of the province (except the port of Tsingtao) is quite slim. The continued
Coamriunist delay in developing a major offensive in Manchuria suggests that
earlier purges of the more intelligent and. successful farming elements, the
draft of able-bodied young men, and the seizure of farm animals are now
necessitating the use of Communist arabr units for requisite spring planting.*
The situation there remains pregnant, with mobile Communist units still
favorably disposed for early all-out attacks.
he serious proportions pf the arovina anti-US fo& i6, Chin, as "H"
spearheaded in student agitation against US policy in Japan, was emphasized
during the past week by a strongly reproving speech by US Ambassador Stuart.
This movement has been countered tQ some extent by restrictive measures of
the Shanghai authorities, the failure of agitators to rally the bulk of the
students, the aroused action of a previously dormant middle group of the
public and students, and a modified attitude of the critical Z5, &Ug jeel
At the same time, Foreign Minister Wang Shih-chieh, in denying an, i4
among the general public against the US, said that China and the US held
divergent views on the disposal of war-supporting industries in Japan, but
that he was convinced that neither would "countenance Japanese rearma.ment."
Prospect, 9f Sian- oviet J ecussions ReAtardIM Sink{Ang. With General "B"
Roschin beck in Nanking as Soviet Ambassador to China, it is entirely pos-
oibie that Sino-Soviet talks leading to an Informal MBA vivveendii for
maintenance of Chinese sovereignty in Sinkiang may ensue. Such an under-
standing might call for a kind of Soviet mediation in the nine month old
deadlock between Chinese authorities in Sinkiang and the dissident Ili Group.
Although the Chinese military position in Sinkiang tuns been improved by an
increase of garrison strength and by completion of a new highway to Sinkiang,
Chinese forces could not withstand an Ill attack with any considerable Soviet
support. Some Chinese Army officers in Sinkiang predict such an attack for
this year, possibly by.August. Therefore Soviet mediation of all points of
dispute in Sinkiang might from Nanking's point of riew appear desirable.
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The Chinese will probably attempt to reach an understanding with the USSR
before acceding to the Ili demand for removal of Ueahimg-appointed Governor
Meswi 3s-bri. To achieve this, China would probably have to grant substantial
economic concessions to the USSR. Soviet demands in Sinkiang at the present
time might perhaps be influenced by the following factors: (1) The Sim-
;Soviet Aviation Agreement covering the operation of an airline from Hasa in
'3irAieAg to alma Ata in the USSR can be terminated by the Chinese in June
1949 (effective September 3949). Since the terms of the agreement are highly
favorable to the USSR,.ioscor will taut it extended. (2) The USSR he. tried
Y succeo ally to maintain a large consulate at mnchow, an important city on
the main route from China proper to Sinkiang. The USSR he. tried in the past
rn have the aviation agreement extended to include operations from Nsai to
i .nchov sntt* although the Chinese have restated. continued. Soviet interest
can be assumed.
Cbgn LI-ft, -of t h-A sB Legislative YVWAs.. l,. j a
the United States during June attending the Moral Rearmament Conference in
Hollywood. abr months he has expressed a desire to study democratic ineti-
tutions in the US. Chen L1,-fu controls the powerful and ultra-conservative
CC Clique which includes =wV of Chiang Kai-shek's staunchest supporters,
but, in the political developments of the past two months it appears that
Chen Li-fu has not always produced the results desired by the Generpliesimo.
The question therefore arises as to whether Chiang is using the time-honored
measure of a trip abroad to punish Chen Id-fu.
"C"
C11, X f rm. Although several sources report that small denomina- "CO
tion notes chiefly of $1. 2, S, and 10.00 are on order or being printed in
Hong Kong and Rangoon. and that new silver coins are being minted in the US,
presumably for introduction into China of a new currency, Hollington Tong,
Government Information Office spokesman has dismissed as "premature" reports
of an imminent currency Change in China, and declared that apart from the US
aid program the Chinese Government has made no request for US support in
currency reform. Tong said though the government has had a currency reform
plan for a long time, it is still uncertain when this will be put into prac-
tice. He flatly denied reports alleging that silver dollars are being minted
in the US or Mexico in anticipation of a currency change. In an explanation
of the recent action by the Ministry of Finance in lifting the ban on silver
coins after 12 years, Tong said their possession and sale to the Central Bank
are approved# but private trading in silver is still unlawful.
ste.Bxchange How,,. 1, group of Legislative Yuan members headed "C"
by Chien gvan-san, has begun drafting rules for expropriating Chinese holdings
abroad. Also.84 legislators were reported to have submitted a resolution on
2 June demanding the registration of properties held by key officials in the
government. The resolution was described as seeking to "prevent corruption
and establish honest government."
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Poore coat ?ated for Nlxi court affect future US ect omits interests "B"
I. Fradoces .s. The extent to which the court of the proposed Netherlsnds-
i i Union will restrain the nolitinal and economic freedom of the
.Led ftateft of Indonesia (UST) is another of the problems currentls
zip c-iecuseed by the Dutch and the Republic of Indonesia and is tntear-
p ed by the TTS delegation of the T'N' food Offices Camaittee (US=CG) as an
P, ..c 4 iractl g affecting IIS Interests. The Dutch take the posit ion that
i.