OFFICE OF REPORTS AND ESTIMATES, CIA FAR EAST/PACIFIC BRANCH INTELLIGENCE HIGHLIGHTS NO. 35 12 JANUARY - 19 JANUARY 1949

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01090A000500020016-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 14
• Document Creation Date: December 12, 2016
• Document Release Date: June 19, 2001
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• Content Type: PERRPT

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VOTICEs This document is a Working paper, NOT an
;Mail CIA issuance, and hal not necessarily been
coordinated with other ORE producing components
It represents current thinking by one roup of
specialists in CIA, and is designed for une by
others engaged on similar Or overlapping studies
The opinions expressed herein maybe revised before
final and official publication. It is. intended
solely for the information of the addressee and not
for further dissemination)
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OFFICE OF REPORTS MID ESTIMATES, CIA
111 EAST/PACIFIC BRANCH
DernLIGENCE HIGHLIGHTS NO. 36
12 JANUARY - 19 JANUARY 1949
SAtTION I. SUMMARY OF FAR EAST MENDS AND DEVELOPMENTS
tApaneee Government is readying legislation for submiscion to the
aem Diet, designed to tighten controls over, labor unions (page 2). Meanhile, the Japanese people remain cool to the impending elections (page 3)*
'U;e13 hal given a green light to foreign investors interested in the Japanese
kt (page 2). The appointment of an Acheson as US Secretary of State
has produced favorable aomment (page 2).
im Korea, both the northern and southern regimes are given priority to -
he expansion of their armed forces (page 4)*
(MANG Kai-shek's tottering regime has lost North China and the fall
of Nanking and Shanghai appears likely in the near future (page 00
.17.:Ispite individual peace efforts on the part of many top politicians, no
unified peace front has developed in Nationalist China (page 7). Meanwhile
',:he Government speeded up preparations to evacuate Nanking (page 7)0 as
top Communist MAO Tse-tung demanded unconditional surrender of CHIANG0s
ragime (page 8).
The Philippines delegate to the Pan-Asian Conference on Indonesia has
been instructed to do his best to prevent anti-wentern developments (page10).
Progrees is reported in joint Malayam.Siamese plans to clear their
common frontier of guerrillas (page 11).
French negotiations with ex-Emperor Bac Dal have raaohed a crucial
otage (page 10).
Indonesian Republican officials remain adamant regarding cooperation
-aith the Dutch (page 11)*
The marginal notations used in succeeding sections of ibis Weekly
MO, "TO or wC") indicate the importance of the items in B opinion
with "A" representing the most important.
VIAL,
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:1ECTIOR /I. DEVELOPMENTS IN SPECIFIED AREAS
simmi
SOAP oleos 1=_deza.teit_etefwgmetenve_taLeseretejageem. As part of its "B"
pregrum to rehabilitate the Japanese economy, SGAP has issued a directive
to the Japanese Government which will have the effect of empanding foreign
private investments in Japan. Post-leer commercial entrants, who can show
that investments will "contribute to Japanese economic rehabilitation",
are placed on an equal footing both with "non-Japanese who have been cone,
tinuously resident In Japan since 2 September 1945" and, except for pro-
13:77ty transactions, with Japanese nationals and firms.
Removal of existing discriminatory legislation against foreign busi-
ness enterprises should lead to cautious investment in japan, restrained
by factors such as: (2) shortages within Japan of materials, facilities,
services; (2) Japanese fears ofl"foreign domination ()) instabilitT of
Japan's "natural" markete in the Par East, (4) uncertainty as to the level
of Japanese industry to be permitted by the Allied Powers and, (5) possi-
bility of renewed restrictions after execution of a peace treaty. Inter-
ested foreign firms include an English company 'which had a pre-war 67
percent share in the Toy* Babcock (boilers), the US Reynolds Metal Com-
pany (aluminum), Caltex (petroleum) and several electric companies.
JaransAIJ=4.1112-MELA*JEWILMALRWA.
Appointment of Dean
Acheson as the Secretary of State has been received with enthusiasm in
Japanese press and government circles thus far, Comment compared Mr.
Acheson's civilian background to General Marshall's military career, and
noted that Acheson has gone on record as favorites restaeation of Japanese
economy in contrast to the Marshall Plants primary interest in. Europe,
Japanese interpretations of the changets significance ranged from expect-.
ation of minor reorientations in the Marshall attitude to a policy of
strengthening of Japan's position in the Far East. Regarding the latter
outlook it should be recalled that the Japanese aware of hidden meanings
in their men public pronouncements,frequently view Occidental personnel
Changes as indications of covert police changes.
"13"
nagmaanlaramaam10120.2Lkal2.,,,Warjsele The ICSRIDA Govern- "B"
nent is preparing proposals for revision of existing basic labor legisla-
tion relating to private industry. It is intended to introduce these in
the new Diet which EISBIDA'a Democratic-Liberal Party hopes to control.,
The YOSHIDA Government intimates that the planned revisions are essential
if the Japanese Government is to implement the new US economic directive
(See RAE Weekly 02). Government initiative reflects the attitude of
YOSHIDA's conservative backers who have criticized many of SCAPfts labor
relations prineiples as being experimental and unrealistic. In the past
the Democratic-Liberal Party has unsuccessfully urged modification of
these lave in the face of insurmountable Socialist opposition in the Diet.
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earbeilciaghT
4-A.p.kn((Cont,)
The Government's proposals come while the public still remembers how
en() of dispute tactics in late TAB by coal and metal miners', electric
power workers' and seamene unions threatened interruption of critical
onerations and fhlfilment of production goels. At that time, SOAP re-
5ected the suggestion that the strike bane embodied in the revised National
Public Service Law which covers Government workers be extended to private
industry. SOAP, however, indicated that the Government, if compelled,
my restrain labor activities in industries affeoting the public interest.
Following issue of the US economic directive, SOAP officials advised trade
unioas to ucooperate in fulfillment of the program, with the result that
most disputes have been settled.
Tn view of SCAP's statement that laborle furelaraental rights will be
preserved, as well as the success of rersuasive tactics to date, it is
not likely that Japanese conservative attempts to 'put labor in its placer'
will be effective. SOAP has pointed out that management bears a respope
sibility equal to labor's, in assisting economic recovery through increas-
ing efficiency of operation. Moreover, the economic stabilization program
Implies that conservative forces must accept greater rather than less
controls, SOAP has pointed out, however, that the new program calls far
temporary surrender of some privileges and immunities and that Japanese
labor will be expected to bear its fair share of eacrifices. Whether
Japanese trade unions will do so willingly, in emulation of British labor,
remains to be seen. The YOSHIDA Government's conservative tactics pro-
bably will tend to push labor towards the extremist comp*
inaRVILIMIA9-23-49DNE1-21221402.
Reports indicate a growing
Japanese indifference toward the democratic electoral process which they
face on 23 January, for the third time since the Occupation. Winter
weather in northern Japan, 'which has limited campaign audiences, is blamed
for part of the apathy. Of greater importance is the stringent restric-
tion an campaign finds, imposed by the new election laws, which has
severely limited campaign publicity. Under the present regulations,
newspapers are prohibited from supporting candidates, thus further reduc-
ing public interest. Another factor is that the Japanese public tends to
vote for a well-known candidate rather than a political party, and many
of the best-known names were discredited in recent political scandals,
causing their supporters to lose interest.
Fewer candidates registered for this election, which may indicate
continuation of a trend first shown by the mealier poll turnout in the
1947 general elections, compared to 1946. Japanese yawn, who voted for
the first time during the Occupation, appear unenthusiastic over their
new role in the democratic era, judging by the fact that there are 45%
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gum (Cont.)
fever WOMB eLtedidates in this election than in 1947.
The weather, lack of newspaper baoking end the scandals which have
not to date touched the Communists, are all counted on to make the "hard
wren vote of the extreme leftists, who are not so affected by these fac?
tors, proportionately more effeotive.
Irsionejsrnimmtenanetketankennatannatment. A number "B"
of indications point to an attempt to increase the North Korean military
forces both in strength and nwabers. It is learned that recruiting quotas
for men and women in the 18-25 age group are to be set up and filled by
local People's Army county headquarters. Centers for the training of
now recruits are being established. Confirmation of the existence of an
armored regiment has been received.
It is significant that security measures are reported in regard to the
accelerated recruiting program. Inductees are being carefUlly screened
and only those in complete sympathy with the government of the North
Kaman poppet state are admitted to the ranks of the People's Army. It
is highly possible that earlier recruits showed some evidence of dissatis-
faction and the screening system is designed to keep dissidents out of the
expanding Army.
The People's Army is currently estimated at 50,000 men. Agy substan-
tial expansion will fUrther drain the labor pool already seriously depleted
by labor conscription, imprisonments, the flight of refugees and the
existing military force.
?satajemenealnoztakennanningronenearendto Internal and external !B"
threats to the security of the Republic have otimulated Army recruiting
and have tensed an acceleration of training with now arms and equipment.
The former Constabalara, now officially the Korean Annie is aiming at a
strength of 65,000 men. (See BIM Weekly #30) The addition of over
15,000 recruits since 24 November 1948, drawn principally from rightist
youth groups, has brought the Army's present numbers to approximately
62,500 men.
The Army is being supplied with infantry and infantry support weapons
up to and inclading 105-mm howitzers, The formation of horse cavalry
units, needed to patrol the rugged terrain along the 38th Parallel) has
been delayed in order to concentrate an cannon and anti-tank companies
which would be more essential in the event of defensive engagements with
eirm4iLscrAat
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gap (Cont.)
the North Korean People's Army.
Army expansion has been oonditioned by political considerations. There
has been an attempt to draw recruits equally from all rightist youth groups.
Officer promotions and appointments are made in terma of previous Japanese
or Chinese military experience and the individual's influence in various
political parties. If the effort at balance to successfUl and all groups
fee/ they are adequately represented, the reault may be a decrease in
erdsting Internal po3itica1.riva2riese It Is more probable, however, that
1,he atruggle for political control of the Army will continue to the detri?
ment of its unity and combat efficieneyo
ET
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"4"1""Irialwees
-6e
CHINA
Nationalists lose North China, fall of Nanking and Shanghai
inminent. The Chinese Communist forces of Gen. LIN Piao quietly
took possession of the important North China city of Tientsin following
the capitulation of its defenders on 15 January. In consequence,
twelve additional Chinese Communist columne have been released which
may well be utilized to augment Peiping's present beseigers8, thereby
ensuring the rapid success of an all-out attack against the city.
However. the Communists, not wishing to pay the price of such a blitz
operation or to jeopardise their popular front appeal a probably will
not attack the historic city, but tighten their stranglehold instead
and force ?Id Tso-yi to make a "deal," flee, or surrender. Therefore,
Peiping/a capitulation can be expected within the next two to three
weeks.
After Peiping falls, the Communists will have at least eighteen
additional columns for further employment elsewhere. The next likely
course of Communist action north of the Yangtze appears to be an
operation against ill-defended Tsingtaoa The capture of Tsingtao would
virtually ensure the early fall of Taiyuan in Shansi, since Taiyuan's
major supply route is via air from Teingtao. Atter Taiyuan fall%the
small forces of HU Teungenan at Sian could be dealt with successfully
by Communists moving smith from YEN Hei-shan's former domain.
In Central China the Nationalist's battle has been lost. The
Government is withdrawing its second-rate, hopeleasly outnumbered
forces to a defense line along the Tangtzeiliver generally extending
from Hankow to Shanghai. Meanwhile, the Communist forces of Gens.
CHEN Yl and LIU Po-oheng are regrouping and preparing to cross the Yangtze.
This operation will probably be in the form of a three-pronged envelop-
ment with one force moving southeast along the Tientsin-Pukou Railroad
toward Pukou and Nanking. Another force would move dawn the Grand
Canal and arose the river between Nanking and Shanghai, thence turning
west toward Nanking. The third force would move south from the Pangfou
sector and cross the river in the vicinity of Wiihu, thence turning
east toward Nanking.
In the Hankow sector, PAT Chung-hsi mill continue to be success-
fully contained by Communist forces to the north of his position. When
Nanking falls Shanghai and Hankow cannot be far behind as PAT will
be forced to make adeal or withdraw southward when attacked by a
major force. It new appears likely that the Communists will occupy
Nanking, Shanghai and all territory north of the Yangtze and east of the
Yellow river, with the possible exception of Taiyuan and Sian, by March.
Nationalist losses through combat casualty, capture, or defection
during the past six months have been slightly over one million men,
their remaining combat strength is now estimated at approximately
400,000. On the other hands the Communist armies totalling over 1,500,000
TET
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moniof increasing efficiency and drunk with victory, are capable of
driving virtually unopposedi through south China to Canton by spring
thereby forcing CRIANG's remnant Government to withdraw to Taiwan.
National Governmet.it preparations to move from Nanklu in the near
future have become increasingly apparent? Canton is the probable
ultimate destination for most units. The Communists delay in pressing
on towards the capital' has given the Nationalists the opportunity to
effect a more or less orderly withdrawal of the Government, in contradiction
to earlier estimates that the flight would be completely disorganized
and confused. Plans for the removal of the archives of various ministries
have been made and personnel, excepting key men, are reportedly being
given the opportunity to resign or to be evacuated from Nanking.
Preparations are also being made for adequate housing cer the Diplomatic
Corps in Canton. This more or less orderly withdrawal of the National
Government will make it more difficult for any accredited foreign
missions to refuse to accompany the Government to a provisional capital.
At the same time; the removal of the archives and the dispersion of
trained personnel will keep the Communists from taking over an intact
administrative organization in Nanking and substantially increase their
administrative difficulties.
The lack of an, organized peace front becomes apparent as more and "C"
more elements in Nationalist China try to bargain with the Communists
for their personal security. Peace overtures on a group and individual basis
rather than on a governmental level, have increased since the Communists
refused CHIANG Kai-shek's bid for peace at his own price. FU Tsoeyi
in North China has been engaged in peace talks with thy Communists on
a regional basis i LI Tsung-jen, who had formerly sent emissaries to
the Communists in Hong Kong; is now reported tc have sent two representatives
to meet with the Communists at Shihchiachuang PAI Chung-hei, who
continues to urge the Generalissimo to seek peace, is reported to be
prepared to negotiate a truce with the Communists in cooperation with
other regional leaders in the Southwest. At the same time, local groups
such as the Shanghai City Council are also-attempting to take the irltiative
for peace. All those efforts, however, are apparently being checked by
a small group around. CHIANG, including HU Shih. This clique continues
to urge CHIANG to hold out through the coming year, counting on the
outbreak of a Soviet-American war to renew US assistance to the National
Government,
Implementation of the National Government'e plan to use Taiwan
as an anti-Communist base is stimulating native Taiwanese resentment
against Chinese rule. Recent reports indicate a continued influx of
Nationalist military and civilian personnel as well as the transfer
of governmental units to Taiwan. Governor CHEN Cheng reportedly will
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be appointed soon as director of a Corannist-suppression campaign in
Southeast China, Taiwan included. In their frustration over oonditions
of Nationalist military rule, native groups may soon painifest their
eesertment of continued US aid to the National Government, for example,
the recent visit of US naval vessels to Taiwan to unload US empunition
for the Nationalist Army.
Dissident leaders confer with Communis regardin Provisional
1222rnment, LI Chi-shen, head of the Kuomintang Revolutionary Committee.
as 'sell as various Democratic League and other minor-group representatives.
have left Hong Kong and Nationalist China recently, bound for Manchuria)
tse for Borth China where a meeting reportedly is to be held at
Shihohiachuang. These leaders, many of them intellectuals possessed
of slight political strength or aptitude, apparently feel the time has
come to visit Connuniet areas and find out what their future role in
a non-Kuomintang, Communist-dominated provisional government viii be.
While LI avowedly expects to be "president" and others hope to receive
posts at the national or local level, some of the visitors are chiefly
concerned with constitutional issues. From the Communist viewpoints
their chief importance may be in furnishing some basis on paper for
cleaning establishment of a "coalition" provisional government.
Communists demand unconditional surrender of Nationalists, MAO
Tse-tung'e official reply to CRIANG Kai-she108 New Tear peace proposal
was a list of demands which, if accepted, would amount to the unconditional
surrender of the Nationalist regime. MAO's eight demands were: (1)
punishment of "mar criminals" (at least 43 government leaders); (2)
abrogation of the Constitution (adopted in 1946 without Communist
participation); (3) abolition of the Kuomintangts "traditional insti-
tutions" (example: the tradition of dating events from 1911, the birth
of the Republic); (4) reorganization of the Nationalist Armies (pre-
sumably their elimination, or inclusion in Communist forces); (5) con-
fiscation of "bureaucratic capital" (a -Communist phrase which means
all large holdings); (6) agrarian reform; (7) abrogation of "traitorous"
treaties; and (8) convocation of a political consultative conference,
excluding all "reactionary" (anti-Communist) elements, and trans-
fer of all power from the Kuomintang to a "democratic coalition"
(Communist-controlled) government. There is no possibility that the
Rational Government, as presently constituted, will comply with the
demands b MAO's reply, however, is not mere rhetoric. Whether this or
any successor Nationalist regime complies or not, and whether the
Communist demands are to be realized through peace or ear, it is clear
that the Communists intend to carry out this proeramo
US Consulate in Tientsin my be isolated. The US Consulate-General
in Mukden has been isolated since early November when the Chinese
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Sil06444Zimmoimil
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Communist administration closed down the Consulate's radio* A Com-
munist spokesman in Hong Kong recently stated that the question of
communication with the U6 Consulate in Mukden "is part of the larger
question of the US attitude" toward the forthcoming Communistecontrolled
government of China, and will "depend upon the course of US policy."
The US Consulate-General in Tientsin, as of the second day of
Communist occupation, retained the use of its radio and consular
personnel had complete freedom of movement, but the political officer
of the Communist forces told the Consul-General that "as the US
does not recognize the Communist government, there could be no formal
official relationships." Milne the Communist ofricer did state that
"informal friendly discussion" and presentation of grievances "would
be welcome at any time," it is quite possible that the Consulato-
General in Tientsin will lose both the use of its radio and its freedom
of movenert and become as isolated as Mukden0
Arraneements for resumption 2L!Ankielng-A2liet trade, embodied
in a new Sino-Soviet trade pact, will soon be put into effect, according
to a report from the US Consul in Tihwac The fact that the USSR
has cooperated in trade arrangements on a governmental level with
Sinkiang represents a major development in Soviet policy toward Sinkiang.
Since withdrawal from the province in 1943, the USSR has refused to
conclude any commercial agreement on whatever terms with the Tihwa
Government. Resumption of trade at this time indicates Soviet approval
of the newly appointed Sinkiang Governor BURKBAN and will greatly
strengthen the pro-Soviet provincial coalition government which is
expected to result from BURKHAN'a appointment*
In exchange for the renewal of Sinkiang-Soviet trade which is
vital to the success of any Sinkiang provincial regime, the Soviets
are reported to have secured Chinese acceptance of the Ashen zone
of northeast Sinkiang. Outright Soviet annexation of Aehan zone
mould represent recognition of what has been a virtual fait accompli
for the past three years. Since early 1946, Ashen has been completely
Soviet-dominated and a mining expedition, guarded oy Soviet troops,
has been actively mining wolfram in that area.
1Teng Kong begins direct trade with Chinese Communists. According
to a late report, a Norwegian freighter recently departed from Bong
Kong bound for the South Manchurian port of Antung. Other reports
from Hong Kong indicate that a modest commerce with Manchuria, via
North Korea, has existed for several months. Chinese merchants in
Hong Kong have visited Manchuria, according to these reports, in order
to make barter arrangements, since Manchurian and North Korean currency
is unacceptable in payment. Official figures on imports from Korea
from September through November total NK$ 20 million, as compared
with HK$ 14 million for the first 8 months of 1948, thus suggesting
that indirect trade with Communist Manchuria has been going on for some
time.
? 5 e ET
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WermiLFIZeiiiimeme
PH IT ? IPPrge.8
reirino.dictates cautious nolicy at Aldan Confererce Philippine "A*
policy at the RenTbilfreerence of 20 Janairy, if carried out accord-
ing to the instructions of President teuirino? will be cautious and de-
aired to dime aware the formation of an anti-western bloc. It is probable
that Carloa P. Romulo, the Philippine delegate, who has promoted the idea
ae a Southeast Asia union for several years, will hold to the eirtt
not the letter of Quirinof
25X6
Romulo will probably emerge as a prominent spokesman at the cceference.
He is empected to take a strong stand in favor of a regional bloc which-can
exert pressure upon the UN, but he raw also be depended upon to counters,
as much as he can, any anti-western inclinations of other delegates.
1141XCIff.HA
French-Vietnamese nee.otiations at decisive sta... The French negotia- "Au
tions with Bao'at appear to be reac gacg, . A 3:3 January French
Cabinet meeting was held to formulate instructions for French High C cassis-
sioner Pignon who interviewed the former Annamite emperor in Cannes on
16 January. Following this visit Bao Dai announced that he would study
the French Government's proposals for the conclusion of a Franc o-Vietnasseve
agreement. ',Then told that his prcerpt return to Vietnam was desired by the
French Government, Bao Dal reiterated that this more would depend upon
French satisfaction of Vietnamese aspirations. In this connection, General
Xuan president of the Provisional Central Government in Vietnam, recently
stated that although the Vietnamese population "ardently" desires the ecc-
emperor's return, ouch action is subordinate to the fulfillment of demands
for real independence. These demands continue to include Vietnamese con-
trol of the Army, foreiket relations and finances, including esta.blisheent
of a new currency which will not be tied to the French franc. The French
Overseas Minister in clearest, has stated ixtblicly that, although the new
Vietnamese state should have full internel sovereignty, there must be a
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"IGII4LT
r 1-rout (c ontinned)
eiettatien impeeted oe external eovereimity no assure the coherence
Icacy- rse. the Prenoh Union." It is apparent that so far as Bao Dai
...a..-rred the decisive staee in negotiations has arrived? While the
t.,14.:1= I, rov,won !Int fi,TO Miti there are no indications either in France or
Pr sereeeeet, with Rao Dae can be reached which will in
ee. ;,fii:Arif i env.4 nirrrov, the shale"- French position in Indochina,
ti ar:,!51 eiemeee cooperate on control of insur caseate. 12eple. Efforts "B"
y thfr: Dritish a inietratiort of Ma a3ne to eract closer Siamese coopera-
eion in the ecrkerol of eommonists Fuld bandits on the Malay-Siam border are
tdoeting with some success. A joint conference held last week in southern
Siam resulted in a nine-point agreement which established the basis for
exchanee of Jr/format-tom and reeintenance of military liaison. In addition,
the 51arnee he been invited to send a grcup of officers for jungle war-
fare training in ?alaya. A subsequent conference has been scheduled to
ei_scuesa Cuntoes program for the common border,
eneeeteing motives of the erIC in promoting Siamese cooperation and
eeoe11 are., (I) to give visible support to the only functioning indigene
eon a./A-._-,-erirmi-ulyriet reeeme inloutheast Asia, (It) to assure Malaya continuing
S rice exports and (3) to strengthen Britainos commercial
eieeition in Siam in the .face of ITS competition. To this end, the British
have not only fevered Seam with VIC export priorities but have also agreed
'orovide eeffeeient arms to equip five infantry battalions of the
Siamese Army.
INDONESIA
Dutch. fail to win sun rt ofl!Las.1LNL.R-ub1icans:, Statements by "A"
interned Riii.publican Premier l4atta who was visited on Bangka Island by
the Security Council's Good Offices Committee, confirm the Republic's
iill to resist a settlement on Dutch terms, His stand, and that of other
officiais indicates that the present Republican policy of guerrilla
aetivity and non operation on a political level will be ccntinued. For-
mer Premier Sjahrir? released from internment in Sumatra in order to con-
fer with the Dutch ?rime "mister visiting in Batavia, told Republican
col:leaven that he had accepted the Dutch invitation only to obtain infor-
elation on the internal sit,nation,. A few non-Republican leaders, while un-
willing to oppose the Dutch openly, have agreed to use delaying tactics to
prevent the immediate entablishmont of an interim federal government. The
Premier of the pro-Dutch State of East Indonesia, who has the support of
Republican sympateizers in areas outside the Republic, is one of the leader
in this movement?,
erglkifeerua*
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Approvedkjor Release 2002/01/03 : CIA-RDP79-040A000500020016-8
-12-
INDONESIA (continued)
The inability of the Dutch to secure competent personnel with which
to staff an interim government, together with an increase in the nuMber
and intensity of Republican guerrilla attacks on Dutch conmunications
and properties will cause considerable internal pressure on the Dutch
at Batavia. E;ternal pressure will: continue to be exerted by Far Eastern
countries at the New Delhi conference, and, perhaps, by Security Council
action.
SE
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