OFFICE OF REPORTS AND ESTIMATES, CIA FAR EAST/PACIFIC BRANCH INTELLIGENCE HIGHLIGHTS NO. 42 2 MARCH - 8 MARCH 1949

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• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01090A000500020023-0
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• Document Creation Date: December 12, 2016
• Document Release Date: June 19, 2001
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PAR EASTAACIFIC BRANCH
OFFICE OF REPORTS AND ESTIMATES
CENTRAL INTELLIGENCE AGENCY
COPY No v 55
NOTICE s This document is a working papers, NOT
ioiai CIS. issuance, and has not necessarily
been coordinated with other ORE producing com-
ponents. It represents current thinking by one
group of specialists in CIA and is designed for
use by othere.engaged on similar or overlapping
studies. The opinions expressed herein may be
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.OFREPORTS AND ESTIIA.TESw CIA
FAR EASTfACIFIC BRANCH
INTELLIGENCE HIGHLIGHTS NO, 42
2.March - 8 March .1949
SECTION r, SDMWRY OF FAR EAST TRENDS AND DEVELOPMENTS
The Commonwealth Conference's offer of conciliation in the Karanw
Burman dispute will probably be rejected by the Burmese Goverment (p0 2)
The Japanese Goverment is expected to-halt payments of "anti-strike"
rtbsidies which have cost 4 billion you (p. 2).
The Korean Assembly has blocked President Rheols plan. to soften
application of the National Traitors Act (p. 3).
Acting President Lies "unoff vial"-peace mission has reported details
of discussions with Chinese Communist leaders (p0 3). Communist public
utterances, meanwhile, have resumed a belligerent tone and renewed military
activity in the event of a breakdown in peace talks is a strong probability
(pp 4)0
The constitutional steps necessary to legalize Cochinohina?s entry
into a unified Vietnam are the subject of present adverse discussion (p. 8)W
The settlement between Army and Navy in Siam, has proved to be so,
narrow in scope that there is a possibility of renewed violence in Bangkok
(p. 9).
The Indonesian Federalists are swinging their support to the Republican
camp, to the embarassment of the Dutch (p. 9).
marr? ne na tions use in suoaeradMF peat oYZS of 13 Wia y
("A.", "B" or "C") indicate the importance of the items in WE opinion
with "A" representing the most important.
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SECTION II, DEVELOPVENTS IN SPECIFIED AREAS
GENERAL
Burman acceptance of Commonwealth oonbiliation doubtful. No Burmese
answer the Commonwealth Conferenoaoe jo rat communications, oouohod in
moat sympathetic terms, offering to assist in conciliating all of Burma's
internal difficulties has boon received and Burmese officials are reported-
ly disappointed and indignant that the Now Delhi meeting did not approve
a large loan without conditions. Since the Burmese Government has already
rejected Prime Minister Mehru'e personal offer to mediate the Karen-Burman
strife, acceptance of Cormonwealth.conciliation is doubtful. The worsening
political, economic and military situation, however, might possibly force
the Government to submit to conciliation eventually, in order to obtain
desperately needed financial assistance. Even if conciliation is accepted,
the Burmese Government will continue to view the Commonwealth action as an
unwarranted foreign intervention. Furthermore, acceptance of conciliation
might lead to a serious split between moderates and extremists in the
Burmese Socialist Party which controls the Government, thus leading to even
further anarchy in Burma. Current rumors that the now Supreme Commander,
Bo Ne Win, is planning a cou d'etat, presumably with the support of the
extrerno left-wing Socialists under Ba Sere, may stem from this situation
and account, in part, for Government,reluotanae regarding conciliation.
The major blocks to. conciliation, however, continue to bee (1) Burmese
conviction that they can win the fight, and; (2) strong antipathy to
foreign interference,
Even if conciliation were successful in reaching some sort of an
agreement and a loan were extended, it is extremely doubtful that any long-
term improvement in the Burmese situation would result. Implementation of
any agreement w uld?be nearly impossible in view of unchecked racial
animoaitlcz, while extremist Burman and Karen elements would continue to
be unoontrollab3e and various Burman political splinter groups--such as
Communists and Ms-would not consider themselves bound by any agreement.
JAPAN
Withdrawal of "anti-strike" subsidies ex ieptod. The Japanese Government may 12(;Q
cease payment. so-oa ..ed 'anti-strike" subsidies, amounting to 4 billion
Von, which have been allocated in the pant to certain critical industries,
Formerly, when demands for wage increases which could not be met out of
earnings threatened the coal,. electric power,, non-ferrous metal and other
important industries with strike action, it was the Government's practice
to allocate sufficient funds to these industries to permit the wage increase
regardless of cost.
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JAPAN (continued)
Removal of such subsidies is in line with SCAP's plan to put Japanese
industrial operations on a more businesslike basis. Without such supports
it is hoped that the paternalistic m nagement.of these concerns will be
forced both to discharge surplus workers now padding the payrolls and to
institute more efficient methods of production. Although the Government
will be forced to support such dismissed employees through large-scale
public works programs, it is hoped that elimination of "anti-strike" sub-
sidies will eventually ease the Government's financial burden.
Assembly refuses to soften National Traitors Act. President Rhea has
?ailed - t o - - the fa- "ana Asse~mbiy . a fns er administration of the
National Traitors Act from Assembly to Executive jurisdiction, Vigorous
implementation of the Act by the Assembly's Special Board will result not
only in the punishment of "vicious" or "malicious" anti-nationalists, but
also in the dismissal from the Government of all Korean officials who are
judged to have been "pro-Japanese" in the past.
Since most experienced and capable Korean officials fall in to this
"pro-Japanese" category, President Ithec had hoped to take over operation
of the purge himself and thus keep many such officials, particularly in
the National Police, at their posts during the present critical formative
period. A majority in the Assembly, however. reflecting the Korean people's
hatred of all things Japanese, continue adamant in their insistence that
all "pro--Japanese" officials be punished or purged from the Governmentp
eBa
Report of the unofficial peace mission With the return of the ",ie
"unofficial peace mission from Piping, Ll Tsung-jen seems to have made
another gain in his efforts to seek peace with the Communists,, Headed
by WLW~ YEN and accompanied by SHAG Li-tse, the mission mot with Com=-
munist leaders MAO Tse-tung and CHOU En-lai at Shihchiachuang? The
mission, stating its belief that prospects for peace with the Communists
seem to be very good, reported the following results of its talks with
the Communists: 1). the Communists seem willing to modify their "eight
demands" somewhat, 2) a tentative agreement to convene the "official"
peace meeting sometime after 15 March was reached, 3) Communists continue
to insist on the arrest and punishment of the "Big 4 families" and the
severance of Kuomintang-American "imperialism" ties, 4) MAO Tse-tung and
CHOU En-lai stated that before actual negotiations could take place it
would be necessary to call a secret convention of the Communist leaders
in order to win the extreme elements within the Communist Party to. the
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support of peace, 5) ChOUs, in replying to SiiAO's request that the Com-
munists issue a cease fire order, stated that this was impossible because
of disagreements within the Communist Party (If true this may represent
friction with the military who desire to continue the military offensive),
6) The Communists proposed that the future government of China eventually
be composed of three equal groups of Communists, Kuomintang members and
non-partisans
Following the miesionvs return LI, has continued efforts to strengthen
the National Government. After a southern trip during which he made
numerous speeches avowing peace;, LI celled a conference of top-ranking
military and political leaders for the purpose of strengthening internal
unity and determining a program for peace discussions with the Communists,,
Further indication of ILl"s sincerety in seeking peace is his recent request
that the US delay munitions deliveries to China for the next few weeks:
The initial optimism created by the peace mission's report was
countered to some extent by the renewed belligerent and intransigent
tone of Communist broadcasts and public utterances of Communist leaders.
Also on the negative side was the failure of the Communists to set a
definite date or place for official negotiations., revealing a continuing
lack of final decisions in the high quarters of the Communist Party,
The Nationalist press reports that the Communists not only are suspicious
of the formation of joint defense systems in Government areas, but also
believe that the peace advocates in the Government camp are progressive
elements with no power,, while the power groups,, under the guise of peace?
are preparing for continuing war with the guidance of the US;,
Communists reaffirm intention to take all China.. General LIN Piao;, raA"
commander of the Northeant( churiann-eopleds Liberation Army (NEPIA),
and concurrently commander of the NEPLA"s Peiping-Tientsin Front Head--
quarters, admitted in a speech last week that Communist military gains
have outrun political preparations, but emphasized that the Communists
do not intend to confine themselves to areas north of the Yangtze,,
"That the Kuomintang must necessarily lose was long ago affirmed by
us,," Gen. LIN stated in a welcoming address to "democratic personages"
in Peiping? "but the swiftness of their defeat was beyond our expectations;"
Although "war on a gigantic scale in impossible south of the Yangtze,"
nevertheless "the peace which people throughout the country-demand is_.,
not a peace with the Yangtze as a. boundary line ? The reactionary
forces must be thoroughly smashed. The governmental power must be
handed over.. All reactionary armies must be reorganized."
Although the Communist armies "have the strength to sweep away all
reactionaries,;" said Gen, LIN,, the Communists wish "to reduce the destruction
of war and to preserve the manpower and material power of the people L"
and therefore are "adopting the method of peaceful settlement? s . ? ., "`eye
warmly welcome the Peiping type of peace," he continued, (but) "against
the reactionaries who are unwilling to accept the Peiping method? we
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cannot but resort to the Tientsin method. We welcome you....to help us
realize the Peiping method of peace south of the Yangtze River..."
Gen. LI11's statement of the Communist position is probably correct:
iYe., that the Communists have not altered their expressed intention
to extend their control over all of China and to destroy all significant
military and political opposition, but that the Communists prefer to take
over gradually, on a regional rather than national basis, and to establish
that control by political rather than military means, retaining the
services of elements previously in opposition so long as those elements
are useful.
In whatever negotiations the Communists may undertake with Acting
President LI's regime, the Communists probably will seek the realization
of the above program, In the negotiations, therefore, Ll's regime would
not in fact be a "National Government" concluding a "national" agreement,
but a single regional regime assisting the Communists in conclusion of
?a number of other regional agreements.
In such agreements,, the Communists will of course apply the Peiping
formula wherever possible: negotiated surrender, leisurely "reorganization"
of Nationalist armies, and utilization, under tight Communist control, of
the Nationalist authorities, but if the opposition refuses to deliver
its armies for "reorganization" and refuses to submit to Communist political.
dictation, the Tientsin formula can and will be employed: military assault,
harsh ocoupation, and liquidation or suppression of the Nationalist author-
ities;,
While peace negotiations with LI'a regime are in process, the Com-
munists will continue to hold their armies in readiness on the north
bank of the Yangtze? They will continue to plan, together with the
representatives of anti-Nationalist groups and Communist fronts who heard
Gen. LIN's speech, a Political Consultative Conference (PCC) which will
form and proclaim a Communist-controlled government of China within the
present year, If peace negotiations with LI's regime are not successful,
the PCC will convene without the participation of any Nationalist leaders
and groups not already allied with the Communists and the Communist armies
will resume their southward drive,. Even if negotiations with Ll's regime
are successful, Communist armies will continue to lay plans for the
Yangtze crossing and prepare to take the offersive against any Nationalist
forces which, then or later, resist annexation by the Communists.
Bevelopments on Nationalist-Soviet economic pact for Sinkiang.
Negotiations for a Nationalist-Soviet economic pact for Sinkiang are
reportedly proceeding in Tihwa? Though phraseology such as "Sine-Soviet
cooperation on an equal basis" may be written into the text of the pact,
conclusion would actually constitute legal cover for Soviet mining and
trade monopolies. In addition, a press report from Tihwa announces
approaching. negotiations for renewal of the Civil Air Agreement, due to
expire in September;
"BS
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Actin President LI Tsung-jen favors conclusion of the pact, on
the ground that tretty relations with the USSR regarding Sinkiang are
preferable to uncontrolled Soviet penetration there. However, the proposed
pact is opposed by the Foreign Ministry, headed by the pro-CHIANG YOU
Te>chen, on the ground that the granting of monopolies to the Soviet
would be detrimental to "national sovereignty." A Foreign Ministry memo.-
randum to Premier SUN Fo recommended that the pact: 1) be limited to
five years, 2) include a most--favored-nation clause which would strip
it of its monopolistic feature, and 3) list specific mining concessions
to be developed by the USSR, instead of granting blanket mining and
axploratlon rights.
Meanwhile CHAIVG Chih-chung, Commander of Northwest Headquarters,
has returned to Nanking from Lanchow and has apparently withdrawn his
twice-submitted resignation as a member of LI Tsung-fen's official peace
mission to the Communists Though CHANG was reportedly granted pleni-
potentiary powers by Premier SUN Fo to negotiate a Sinkiang trade pact
with the USSR without further reference to the National Government, SUN
Fo has recently insisted ths:b no commitments can be made without Foreign
Office approval? CHANG appears to be very anxious for conclusion of
the Sinkiang pact in order to assure himself a prominent role in the
Northwest, He is now working to secure Foreign Office approval, using
the argument that such a Nationalist-Soviet Agreement could not be
attacked by the Communists without compromising their relations with
the USSR, and would therefore strengthen the Nationalist bargaining
position in the coming peace negotiations.
North China de cession due to communist application of trade policy., ale
Application of Communist commercial policy in North hina continues to
vary in different areas, but active corm:er,.e with areas outside of
Communist China has not been stimulated. Announced commercial policy has
consistently been free domestic trade and controlled foreign trade (that
is, permitting imports of necessities and exports of surpluses), but
little encouragement has been given this policy. The Co':lmunists have
merely acquiesced to some extent with arrangements made by Nationalist
and foreign shippers, While the recent interchange between the Shanghai
Shipping, Association and MAO Tse-tung in Peiping brought forth Com-
munist protestations of their desire for trade. little positive action
was taken other than to approve the already existing barter transactions
between the Central Trust in Shanghai and the Kailan Mining Administration
in North' China,
Shantung Province has recognized the existence of trade by announcing
import and export regulations which prohibit the import of luxuries,
"non=essential" goods and ermit free import of "steel, iron, trucks,
pharmaceuticals and others." Regarding foreigners trading into Tientsin,
some clarification may be expected soon, The Chief of the Communist
Foreign Office on 25 March told British trade representatives that, as
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soon as TUNG P1-wu replied to the request of the foreign Chambers of?
Commerce to "resume general commercial trading, manufacturing, etc.,"
a general meeting would be convoked..
The damage to the economies of the Hopeh and Shantung coastal
cities as a result of Communist commercial inaction in already apparent.
In Tientsin, where even normal shipping is not yet permitted, half
the population, or perhaps a million people, are directly or indirectly
dependent on the export trade. Unemployment is reportedly very high
and much of the city's industry is idled Peiping is also badly hit;
the US dollar has risen five times in terms of People's Bank currency
.,since its occupation, and the black market in greenbacks, gold and silver
.s so flourishing that it was officially banned on 28 February, apparently
%rithout much success., In Shantung, a depression is not so apparent,,
chiefly beacuse normal shipping is permitted in ports like Chefoo and
Shihtao, and because a small trade with other Communist areas, Shanghai
and Hong Kong has existed for some time., However, resumption of normal
trade markets and more efficient collection and delivery of export
commodities to the ports would result in increased prosperity for the area.
]economic insulation from the National Government is being achieved
in some degree by every non-Communist Chinese Province, including Taiwan.
The Ministry of Finance admits that Provincial tax payments are greatly
reduced and that the loss of such revenue appears to be perm-anent. The
transmission of gold and silver out of Yunnan and Hunan is now prohibited.
The chief source of revenue remaining to the National Government, the
circulation of the gold yuaan, is being increasingly restricted by
Provincial government actions. Taiwan has had a separate and more
stable currency for several months. The Hunan provincial government has
recently announced the issuance of its own currency based on silver,,
while other provinces, notably Yunnan, Szechuen and Kansu, have
announced their intentions to follow suit. Repudiation of the gold yuan
is general throughout China.' In inland China, silver dollars are in
many places the sole accepted currency, thus restricting circulation
of the gold yuan to the coastal cities, where foreign currencies are
increasingly substituted.
Communists re ortedl Tannin new military operations. Despite
current peace maneuvers, thoUommunist High Command is reported to have
concluded plans on 12 February at Shihohiachuang for a mass crossing
of the Yangtze to be executed, during the last two weeks of may. The
plan embodies major crossings between Nanking and Shanghai; near tiryuhu;
in the liankow sector; and west of Hankow., The mission of the Communist
armies is said to be the occupation of the Yangtze valley and its major
cities. An interesting aspect of the reported plan lies in the scheduled
utilization of LIN Piao's W%nehuriaan armies in the Haankow sector,
a0e
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The plans if obtained surreptitiously as claimed, represents
either sound Communist military planning or a 'orrimuni st `plant' to
encourage peaceful capitulation of these areas. On the other hand,
this 'information' may be a Nationalist 'plant' on the part of LZ and
his cohorts to enlist Kuomintang hold-outs to his peace cause.; If
the 'plan' is given wide publicity this may well to be the result,
ITID
Cochinchina Territorial Assembly issue. Reaction to the French 'CBs
Govern~Genti's b1I for the estab shnent of a Territorial Assembly in
Cochlnchina has ranged from tentative approval to diatribe,
of the French 2Tnion, (AFTT a The A s., --
~ purely advisory body for legislation con-
cerning the overseas areas, will consider the proposed bill. on 9 `?arch,
An expected favorable recommendation by the AFTT may strengthen the Govern-
ment's position in the National Assembly debate on the Indochina question
as a whole scheduled for 11 ?larch,
The question of a new Cochinchina Assembly relates to the necessity
for a constitutional change in the colonial status of Cochinchina before
it may be unified with the protectorates of Tonkin and Annam to form the
unified "three Ky" state of ?Tietnam, Articles 75 and 77 of the French
Constitution - - which specify that modifications of states within the
French TTnion may take nlace only as the result of a law passed by the
French Parliament after annroval both by an elected Territorial Assembly
and by the AFTT are involved.
The present Assembly of South Vietnam, in a self-interested move to
avoid election of a new body? has declared itself "in fact a territorial
assembly of Cochinchina", and adopted a resolution requesting the French
Parliament to take prompt and unequivocal action on the unity and inde-
pendence of all. Vietnam within the French Union, It is doubtful whether
the South Vietnamese Assembly will be successful in this move to preserve
itself..
An influential Vietnamese
TITS C editor in Saigon , frequently quoted by the
Consulate General, characterized the projected assembly as a "motley
monster born, of haste and formalism which will be elected in name only,"
He attacked the rumor that those Vietnamese members of the present Assembly
who favor unity with Tonkin and Annam would not be eligible as candidates
for the new assembly, while French members who saamport Cochinchinese au-
tonomy may stand for election. The editor concluded that ""qui.ty, logic
and legality" hav(; been Ignored in frantic preparation f er. Hao s)ai's return.
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Uneasiness in Siam expected to continue. The settlement reached by
a joint 1;;F --Navy committee,, eatabZ shed last week after the abortive
coup d'etat attempt, has proved to be much lose extensive than expected.
Far from solving outstanding political differences, the agreement is con-
fined to a delimitation of the functions of the Armed Forces. As announced
by Premier Phibul, last weekend, the settlement: (1) agrees to withdrawal
of Army and Marine reinforcements from Bangkok, (2) limits future use of
the Armed Forces to national defense and, (3) charges the Police with ex-
clusive responsibility for maintenance of order, except when the Govern-
ment may authorize employment of the Armed Forces,,
"A"
Notwithstanding some Army support for the Navy effort to reduce Array
Deputy C. in C. Kach's power, it is doubtful if his strong control over
the Army will be weakened for the present. Current uneasiness was heightened
by the recent arrests of many Free Thai partisans and the "escape" murders
last Friday of four important followers of Ex-Premier Pridi. These late
developments, in eddition to the existing Navy and civilian antagonism
toward the Army members of the Phibul regime, may result in further violence.
There is every likelihood that this tense, unsettled condition will exist
during the next few months.
I"JDMMIA
Dutch ma lose support of Indonesian Federalists.. The Federalist "Be
Indonesian Assembly is scheduled to meet 10 March to vote on a resolution
supporting the Republican demand that its leaders be restored to govern-
mental authority at Jogjakarta. On 3 March, the Federalist Assembly voted
unanimously to back the Republican position. Later, Sultan Hamid, the
pro-Dutch chairman of the Federalists, insisted that the Federalist decision
was a feeler directed toward Netherlands policy and that it was in no sense
final. Hamid's lest-minute effort to equivocate was probably occasioned
by High Representative Beel's disapproval of the Federalists' action. The
majority of the Federalists, headed by Anak Agang of Fast Indonesia, feel
that their pro-Republican resolution should stand and that a last-minute
switch of allegiance back to the Dutch would brand them as "puppets."
If the Federalists succeed on 10 ':larch in reaffirming their earlier support
of the Republic, the Dutch will have lost one of their'strongest arguments
for the current "plan" to solve the Indonesian problem,,
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