OFFICE OF REPORTS AND ESTIMATES,CIA FAR EAST/PACIFIC BRANCH INTELLIGENCE HIGHLIGHTS NO. 61 27 JULY - 2 AUGUST 1949

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01090A000500030024-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 11
• Document Creation Date: December 9, 2016
• Document Release Date: January 26, 1999
• Sequence Number: 24
• Content Type: PERRPT

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FAR EAST/PACIFIC BRANCH
OFFICE OF REPORTS AND ESTIMATES
CENTRAL INMLIGENCE AGENCY
WORK:'_NG PAPER
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NOTICE: This documen: is a working paper, not
an official CIA issuarce. It has been co-ordina-
ted withir ORE, but not with the IAC Agencies.
It represents current thinking by specialists in
CIA, and is designed for use by others ewAged
in similar er 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 fur-
ther dissemination.
COPY FORK
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vptivitik?,
OFFICE OF REPORTS AND ESTI
FAR EAST/PACIFIC BRANCH
INTELLIGENCE HIGHLIGHTS NO. 61
27 JULY - 2 AUGUST 1949
SECTION I. SUIVARY OF -FAR EAST TRENDS AND DEVELOPIMNIS
Despite evident coolness elsewhere in Asia. Korea's President
Rhee continues to welcome CHIANG Kai-ohek, who is expected to visit
Seoul shortly, as a charter member of the tentative Pacific pact (oc
On the Chinese war-tront, Communist -forces apparently have occupied
Changsha on the road to Hengyang in the south and pushed a salient into
eastern Kansu in the northwest (p. 3). US businessmen in Shanghais mean-
while, feel that chaotic conditions in that city may prevail indefinitely
and see nothing to be gained by remaining there any longer (p. 4).
Premier Phibul's regime in Thailand, successfully intimidating its
opposition in Parliament last week, received a vote of confidence (p. g).
Reaction of the Burmese Foreign anister durine his impending visit
to the US may do much towards bringing that troubled land closer to the
West (p. 7).
Philippine President Quirino, another visitor in the near fuelre,
expects to make political capital for the November election nut of his
14ari trip (p. 7)0
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The marginal notations used in succeeding sections of this Vmekly
("A", "B". or "C") indicate the ieportanoe of the items In RAE opinion
with "A" representing the most important.
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swron II. DINELOPMENTS It SPECIFIED AREAS
GENERAL
CHIANG'S Korea visit is intended as pact feeler--CHIANG Kai-shek
expecte to come to Seoul for conversations with President Rhee on
the proposed Pacific pact and other mutual problems. A date for
the visit has not been fixed, but President Rhee has stated that
CHIANG would come during August. Since Rhee had invited MacArtnur
and Sebald to visit Seoul for the 15 August celebration of the
Republic's first anniversary, it is probable that CHIANG'S visit
was being planned for the same date in order to create the impres-
sion that the US was associated officially with Pacific pact con-
versations. MacArthur and Sebald have declined Rhee's invitation.
teelever, and CHIANG, in tern, may decide to make F0.1- 7isit to Seoul
the immediate future.
Rhee'scontinued pushine of the Pacific pact is motivated by
the hope that -a union of-Pacific states could extract military
eonmitments from the US. He appears oblivious to the blighting
effect produced by CHIA:P.1(1%-v narticipation in the tentative union,
and apparently believes that association with CHIANG Will prove to
he an asset, so far as future US military aidis concerned. If the
proposed neeottations result in formal Korean commitments to CHIANG'e
tottering regime,Rhee's government may find itself at a considerable
disadvantare in the event that other Pacific nations succeed in
forming a more viable union.
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Cl INA
Cornnunist push resnains unchecked.-The latest Communist military offensive AC
moved forward without impediment from Nationalist defenders last week.
In south-central China, the next oblective of the Communist attackers
was Hengyang, the only remaining stronghold outside Kwangsi still in the
hands of Nationalist General PAI Chung-hsi. The largest Communist force,
already having overrun all outlying positions at Changsha, has forced
PAI's withdrawal and, according to unofficial reports, has occupied the
city. Another column is moving south along the western shores of Tungting
Lake. where Changteh, an important market town, has been taken.
When Hengyang falls, whether because of PAI's evacuation - still the
best possibility - or as a result of a decisive defeat by the Communists,
little save distance will remain beLueen these Communist forces and Canton.
In this connection, an increase in activity was noted in the Kian-Kanhsien
area, -where the spearhead of the forthcoming drive into Kwangtung is pro-
bably being readied. The launching of this action may, however, await the
successful conclusion of the operations around Hengyang.
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To the northwest, seven armies of PENG Teh-huai after splitting
HU Tsung-nan's forces by capturing Paochi, have begun to push a salient
out of Shensi into eastern Kansu. This movement could develop into a
full-fledged Communist effort to eradicate the foroes of MA Pu-feng,
but the number of Communist troops thus far committed seems hardly
sufficients It is more probable that this is the deployment of a hold-
ing force, thrown out to prevent the MAs from striking the flank of a
Communist thrust south towards NU Tsung-nan's main positions along tne
Szechwan border.. The MM have made two suoh attacks in the past year.
Since the Communists are faoed with food problems and Szechwan, one of
the richest aericultural provinces in China. has reportedly enjoyed a
fine harvest, the area to the south of PENG Teh-huai's forces is pre-
aumebly more inviting than the barren reaohes of the northwest.
American businessmen seek exit from Shan hai--Alarmed by the recent "B"
rise of anti-foreign feeline as evidenced by mob action in Shanghai,
the American Chamber of Commerce in that city has ureently recommended
the evacuation of US business personnel, The Chamber of Commerce be-
lieees that US personnel are in the dangerous position of "hostaees"
and that the chaotic situation in Shanghai. worsened by the Nationalist
blockade of the port, may prevail for an indefinite time. The Chamber
foresees eventual loss of US comrercial properties and working oapital
in China. through such Communist devices as the levying of exorbitant
taxes, unreasonable demands for severance pay and heavy "ransom" exactions
from key personnel. To faoilitate evacuation, the Chamber favors estab-
lishment of air transportation to Hong Kong end negotiations with the
Communists throegh the International Red Cross.
The Chamber considers US aid to Netionaliat China a major cause of
the present difficulties and recommends severance of US relations with
the Nationalists Other US groups in Shanghai are apparently less per-
turbed and US businessmen in North China are more sanguine regarding
future developments.
222211221!imIluts in the Northwest--Of all the regions still in Nation- "au
alist hands, Northwest China--the provinces of Kansu, Nighsia. Tsinghai
and Sinkiang?presents the CCP with the thorniest problems. The dominant
figures in this area aro MA Pu-fang and MA Hung-kwei two rabidly anti-
Communist Chinese Moslem warlords whose troops control the major part of
the area and whose leadership is acknowledred by the predominantly Moslem,
although not predominantly Chinese, population. NA Pu-fang's troops are
one of the best fightinr forces left in non-Communist China; they have
scored victories over Communist forces in Shenei during the past two years.
In addition to the problem of liquidating MA's troops, the CCP is faced
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with an evident Soviet desire to regain economio control of Sinkiang,
a subjeot of nerotiations earlier this year between the USSR and the
National Government.
Despite these difficulties, the Northwest is not omitted from the
CCP ,s schedule of corquest and Tihwa, the capital of Sinkiane, wns
listed along with Lanchow, the capital of Kansu, as one of the sixteen
centers to which the CCP's "Peining surrender formula" mull apply.
Communist forcee confrontine ILA Pu-fanr in Shensi have been reinforeed
and are rerortedly now drivinr into easterp Kansu. A "Northeest Coros",
rade p of stunt adrinistrators and eolitical cadres, is being reoruited
in East China and a propaganda oampaien, boostine the CC?' s policy of
laueonoey for racial minorities", ie beine hewed at the Chinese and
TurIsi ?oslens, as well the Vonrols of Che area. Recently, CA NC Chih-
chune, former Nutionalist Northwest boss who renained in reipine after
the failure of the April ITT-CCP peace negotiations, made a steteeent
praisine CCP policies and urring Nationalist diehards to admit their
mistakes and give up their peliticel power. When low supplies and
mountine popular resentment of conscrietion make the MA e position
diffioult to maintain, the CCP may find CHAnG's oonsidereble popularity
in the area useful in extend aniconsolidatine eentrol over the
Northwest.
j_c_2leenc?huriaroesunistson_trade with outside world--The Northeast
Administration has increased its oontacts with the outside world in the
three months since the opening of the port of Yingkow to commeroial
traffic. A second-rate port which, unlike ice-free Dairen, is frozen
over four or five months of the year, Yingkow nonetheless offers im-
portant advantaree to the Communists. Soviet oon'rol is absent; short
rail connections exist with the cities in the Mukden area, and river
traffic taps import-int aericeltural districts to the north. A few
Hongkone ships called at Yinekow during nay and June, brinring raw
cotton, copper, tin plate and electrical equipment in return for soy
be and bristles. Except for a little trade out of Antune earlier
in the year, this was Communitt ranchuria's first commercial oontact
of eny importance with areas outside the Soviet zones
The Northeast Trade Bureau and the Northeast Transportation Admin-
istration, the arencies presumably responsible for this activity, are
still in their infancy. They probably will increase the volume and
efficienoy of Yinekowis trade considerably before the harbor freezes
rerrilli."1".1.
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in November. The Transportation Administration, headquartered at
Yingkaw9 recently established a navigation branch in Dairen which
is not connected with the Soviet-directed port authority already
there. Additional Communist efforts to promote trade outside the
Communist Far East include negotiations with the British shipping
firm, Jardine-Matheson, establishment of a "Northeast Fur Company,"
the official Cormenaist monopoly for bristle and fur trade, and the
effer of 259000 tons of Manchurian soybeans F.O.B. Chinhuangtao,
made through the medium of the Worth China Trading Bureau at Tientsin.
These developments do not necessarily mean that Soviet influ-
ence in Manchuria is deoreasing.and? in fact, it is reported that a
Manchurian mission to Moscow has just signed a trade agreement with
the USSR. Nonetheless, Manchurian trade activities, previously con-
fined to Soviet areas of control, now have extended into the non-
Soviet world.
Nationalist moneyttpmb12227?The continuing inability of the National
overrnmentto find sufficient revenue to meet necessary expenditures
oonstitutes the post serious threat to the new "(diver oertificate"
currency, issued by the Central Bank in July and convertable at will
into silver coin. Unless the Nationalists can eliminate government
deficits which now average about SO million silver dollars a month9
they will be tempted to resort once more to the overissue of paper
money to meet expenses. With the Gold Yuan fiasco still fresh in
the public mind and the people still dubious about the new silver
notes, however, the slightest symptom of overissue may lead to a
precipitous depreciation and to a general public refusal to accept
the new Nationalist currency. To counter such fears. the Finance
Ministry has given assurances that the issue of silver notes will
be restricted in volume and that government deficits will be met
from reserves rather than from uncontrolled note issue. Exhaustion
of reserves, however, is as much a threat to financial solvenoy as
the overissue of currency. In the absence of foreign credits, nothing
but a balanced Nationalist budget can prevent another cycle of currency
depreciation.
nee
THAILAND
ReshuffledjuamAmmtattu_222er--On 29 July, the nesePhibul cabinet "B"
won formal Parliamentary approval in a vote of confidence. carried 63
to 31. This apparently clear-out victory for the Government was not a
result of actual majority approval but was dictated by Parliament's fears
of forceful retaliation from the military clique which supports Premier
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eee
Phibul. Opposition members in Parliament, who had directed heavy
attacks at the policies and composition of the Phibul regime, pre-
sumably could have mustered sufficient votes to defeat the Govern-
ment if they had dared. Parliament's reluctant approvals, however,
shows that the Phibul regime is sufficiently dominant to maintain
control of Parliament and function with a semblance of constitn-
tionality for the present.
BURMA
42LEnjarliAter E Maun to visit the US---Burmese Foreign Minister
E Maung, who aleo holds the portfolios of Health and Judicial Affairs,
is scheduled to arrive in the US from the UK on 12 August for an effi-
caul vieit. The results of his trip are likely to have a profound
effect upon the future policies of the Burmese Government. It is
understood that E Maung wishes to discuss four major topics during
his stay here: 1) the extension of technical assistance to Burma
under the Point IV program, 2) the possibility of developing defenses
against the spread of Communism in Asia, and particularly in Burma,
3) public health topics, and 4) various judicial matters. Earliel,
in the UK, E Maung is expected to consider such important subjects
as a UK-Burma treaty of commerce and navigation, UK financial assist-
ance, delineation of the Sino-Burma border and Burmese policy towards
Indochina and Indonesia.
Despite some reports to the contrary, it is believed that E Maung
is making a genuine effort to establish oloser relations with the West
as a means of restoring stability and safeguarding the independence of
Burma. He exercises considerable influence in the Cabinet and could
give greater impetus to the government's developing trend toward a more
moderate policy. Disappointment over the accomplishments of his trip,
however, could undermine, if not reverse, this favorable inclination
and lend greater currency to the views of the extreme leftists in the
government who maintain that the West is interested only in exploiting
Burma at the expense of her political and economic independence.
Pi2LIPPINES
*Be
Quirino arrivine faillsin_a452Idiscused,ons--President Elpidlo Quirino WY
is scheduled to arrive in Washington on 8 August, in hopes of winning
additional US financial and military assistance to the Philippires.
The mission, if successful, eresumably would increase Quirino's-prestiee
in the forthcoming presidential elections, in which he needs all the help
he can get. At a minimum, Quirino hopes to secure reoornition of Philip-
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-8-
pine needs and assurances of early US consideration.
Quirino has only fair prospects of defeating the ultranationalist
Jose Laurel in the November election. 114 oan be expected to emphasise
the injury which a Laurel victory would do to US-Philippine relatiors,
in order to support his plea for further US aid. He will arrue, with
considerable logic, that the US should support his campaign by inoreasinr:
its financial and military commitments to the Philippines. It is probable
that members of Quirino's staff Will solioit campaign funds among US
business firms whioh have island interests.
The political implications of Quirino's visit in the US are quite
apparent in the Philippines. The opposition Nacionalista leadere, as
well as the opposition and leftist press, can be expected to accuse the
President of using the US visit to bolster his election (themes and will
charge that the US is interfering in Philippine internal politics.
Additionally, the U3 may be condemned for employing Quirino as a puppet
to promote a Pacific union*
On tbe other hand, a considerable portion of the Philippine electo-
rate will be favorably impressed by the visit even if Quirino is able to
report no more on his return than that the US is earnestly and sympathe-
tically oonsidering Philippine ecionomio and military problems. Ability
to make even this minimum statement would also tend to increase confi-
dence within Quirino's administration and to assure him of firmer support
In the difficult months ahead.
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