OFFICE OF REPORTS AND ESTIMATES, CIA FAR EAST/PACIFIC BRANCH INTELLIGENCE HIGHLIGHTS -- WEEK OF 13 JANUARY - 19 JANUARY - 1948

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-01617A004600020002-7
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 27, 2016
• Document Release Date: March 21, 2013
• Sequence Number: 2
• Publication Date: January 13, 1948
• Content Type: REPORT

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Document No.
001
NO CHANGE in Class. E3
D:CLASSIFIED
CATIED TO: TS .
? EDA Mmo, 4 Apr 77
Auth: rak PT.C. 77/1763
Date: 1 FEB 1978By: Ohl
t?
FRAU CENTER LIBRARY ,
FICE OF 'EPORTS .70) ",;STE:4 SS, CIA
PAR 13ASTALCIFIC -e2A7gE
INTELLIGE"CS HIGITLUITIS .11?,EIC 'F13 :1,-,,...TTARY ? 19 ,i1.17.7i,17
GENEMAL
Um: Zealand representative to UN critizos the lto
1.11.0.~MMezu?
V3W Zealand's reprer.eit'Aive to th ur, Sf_r Carl Berendnen, has
indicated to US reprz,sontfttives to 'zha t *e..:1 has reported to 1118
Government 'chat the 't'irs-.; uoctim o Lhe ,kmmittee 1.,ez.; a "oompleto
fiasoe and ha v oritioisod the US supply the interest and
/oadorship ompected by the members. Be:',endc::. c-;%acchos little importrnoe
to -4te CorrnittPo encept as o. "bcoksop :or fant:.es by the Security
Council*" Ho feols that it aosorp14-, 11.;:.Is on the vs .,;o quostion.
The emly value he see in the Irteriz C ttee is ific,.% it night cent:A-
buts through debate 1;.o a public understklading eve veto foii nd ha
it might possibly become c: betweJa Lc p:lsont ineffective UN and a
future oreganUation for collective sec ifity -.Tfthout Russia. Nof7evor,
should such an organization devclop, Derendsen foeesees two sechrity syn..
toms competing for dominlnt pomr e1 en1in7, in ot.:tastropheo
Southeast Asia League clans mid-February weeti.ag.
----___
The Souilleast Asia 7,eague, thioa forc in Banro ias Sept:Imber
by "representatives" of Slam, Vietnfll, aos Crbodia. Ini, ala.
and Burma, is reportod as plarAing to hCC a mid-Fetrulry meetirks ir
Bangkok. Tho League, an :-)..-.!facial associat. apparently Alas towerCcc
establishplmt e an effiola7. 1,outheastziu17'-deration which would represent
the goverhnorts of the erca? Its oricth:1BOOMS '.1C) have cans
from the Fee Thais and =ndool-ElnoLe i but nor that the Free
Thei-domirstod gover53men:; or Sim hi b= ou%-d, the Sienese vambere of t:s
League have dropped out aid rrohps have acw.led loadershitic.
If the present Siamese Govea:ent p:oves hc,,%fi_t it io ;-,:lat the
League will movo to Ranf:ce'! ha.; aly teen invitoq.
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?
SECRET
JAPAN
Inflo:IlEalliama. The progressively increeeing issue of currency in
Japan !sto fears of uncontrolledinflation. By 21 December 1947,
note issue had reached the staggering figura of '2l9442,000,000 yen. This was
just about double the note issue at the beginning of the. fiscal year on 31 Werth
l947, and compares with approximately 12 billion yen' in circulation in arch 1946.
. It is reported that a tote issue of 300 billion yen is expected by April. 191i.5.
Vcith industrial production atonly about 40 percent of the 1930-34 level
and shoWing little. signs of sabstential improverrnt? the increasing currency
.
circulation is causing deep concern. This is pirticularly aggravated because
of enlarge part of the increase in circulation is passing into the hands of
the urban merchants, who are more likely to continue the notes in circnlation,
instead of the farmers who would be more likely to hoard the notes thus keeping
-them out of circulation.
Contributing to the inflation is the deficit financing of the government.
The general account of the budget is approximately in balance but this is a ?
misleading picture. Special accounts and prefectural .balance are far it arrears,;
Ajedandeby the Reconstruction Finance Bank whose major purpose is the financing
for rehabilitation is also causing a substantial_ increase in currency?
Japan is undergoing a controlled inflation. Until the present time, this'
.inflation has been serious but not as yet catastrophic. Although there has been
some weakening of faith in the currency, flight of currency to available goods ?
hag not as yet become extraordinary. .However, eith prospects of increasing note ?
issue, the danger of currency collapee itcreatese linfortnate2y; there appears .
to be to immediate outlook for substantial output of goods which can "soak up"
the currency. -Unless the Government renders more effective its; inflation control,
Japan faces an economic crisis.
Fifinreone?new commoners. One of the historic events of postwar Japan toes
place-FFEEETTF7FUE-MaigUgrs of 11 Jar anise Imperial families became commoners, .
thereby undoing another of the steps taken by Japen'e empire builders. At the
tfme of the neiji Restoration -(1868) the crown rested on the 16 year old Yeiji,
son of the Emperor and a-Commoner. DeSpite the common Imperial practice of:
adoption and the keeping-of Concubines; there Were no other members of the dynasty
,who could ascend to the throne in the case of eiji's death. Japans empire
builders needed a strong dynasty, so in additicn to promptly marrying off the
. boy eeperor, eleven families were raised to imperial status. Nine of these families
were descended from Yr. Fushimi Kuniiye whose vague claim to Imperial status was
based on decent from the 102nd' Emperor; twenty-two generations earlier.
Japan's expansionists used these families to further their plans for
aggression. The daughter of- the last Tokagarm ShoFAin was married to a prince;
thus binding the Shogun and his followers to the throne. After the Government,
had suppressed tne civil war launched in 1877 La ne Satsuma Clan it. Kyushu and
its cohort, tho King of the Yyukyus, deugnters of the head of the Clan and the
King were married to Princes. Nagako, granddauehterof the King of the Ryukyus,
became nirohito's Empress. After the aenexation or Korea, the heir to the throne
was broughb to Japan and married to an :mperea1 Princess as a means of helping
absorb Korea into the Empire.
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SECRET
.e3e.
. The Inferial "second string", who have?led secluded lives as virtual
prisoners of the empire builders,. are now thrust out to earn. a livine, shorn
of their titles and most of their wealth. Those with eilitary experience are
subject to the .sa-ie puree directives as .other c.omeer.ers. -embers of the group
have apparently had ambitions to replace the Elder Statesmen and the Privy;
Council. 4eing individuals of mediocre ability, however, it is not anticipated ?
that the new coemoners will becone powers behind the throne'
Sienificance of new Riehti st national Counci 1". --;:ecent repo el s indicate
that Kim 1Koo has abandoned his intrigue for a coali tion with '.?:orth Korean leaders
for the establishment of a unified Korean Coven-re/A, and hast:toined forces eee,h
;Owe Syneran in the latter' s clamor for the early. election of a ser are e South
Korean Government. Kim's "trial-balloon" effort a t a Xorth-Sou "coali tion"
indicated that solid itiehtist sueport for this 'ave would not 10 forthcoeinge
Hence, Kim wes aele to.perce.ive that he would no have sufficient strereth to
oust the Northern Communists from. the future "coalition" Foy rneente rim then
parently de.cided th me rFe hi .S "National Cor &' with F.bee' s " 'eeprescete Ve.
Assembly" in the formation of the new "Latione-2. Coli.ncirc The proile a? of
this new Hi ghtist coalition is to cooperate wi th the UN Co,,1?,71 ssicn? in an atte-.1 t
to induce the Comeissiore to hold iereedie.te elections in ;eolith Korea alone in the
probable e\-ent of zioviet, rerusal Lehfind this support, however, is
the thinly-veiled threa...; to the US, that if Liovieto.ostinacy result in prrOL1-11.?ted.
delay of a settlement on the part of the U1`7, the "National Council" will constitute
itself the leeal goverment of South Y. 0 ;eh and ar-l.tate for immediate reccrni tione
'rt., is evident that the internal olitioal situation in south Korea is such
that the US will he forced to hold an election in the near futeree with or with.
out U:::; observation. Any election held An eouth Korea cel thin the calculane CUture -
will constitute nothine more than a confirmation of the lational Council's" claim
to ,governmental auehority.
The US will thus be in a eosition of authorizing the establisheent of an
independent eouth.Korean Government for whose actions it cannot be reseonsible,
and whose qualifications for. safeguarding US interests in the area .are certainly
debateble. Indications are that :tee eoulo nominally head the government, as .
"President" while Kim would effeetive_ ce7.1trol. Both have unbounded
ambition end the latter is reportedly intrieuing for Chinese support in his
aspirations for eventual ennexation of 1..o rth 'Korea,. ? Thi. s intrieee is appare-ntly
taking the form of offering irrmedate. ;ilitar id to Ch:lang, Kai-shek in Y.anc'nuria
in return for future Chinese assistance in tie ceneeest of :?:orth Korea.
Regardless of the practicality of these renerted aim-, it is certein that
the future. Ithee-Kiri coalition will haecea decided penc'eant for eclitical
adventures. .erice any overt U6 connection ? with; or corrrAtients to, such a regiee.
will be fraught with coesiderable hazarde
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. CHINA
LeLttnno
4'f:ell...scale- Communist effort at MUkdan is not expected to de-
velop before lete :larch or early April when the food shortace in the city
will be at its worst. The Communists, otiil disposed in a broad arc south
and southwest of nelTden, are now continuing their.efforte to keep the city
isoleted and disrupt iiee eeenemy. ThEnCeeeunists are further aided by the
evident dissension and staff cosfusion in Chen Chong's Eanchurian head
quarters. The feud between General Chen and the Thatapea Clique broke into
the open again nhen an entire division, presumably Chen's, wes wiped out
as two ;:hempoa-convanued divisione were slow to reinforce, rationalist
sources admit loses totelline 25,000 for the past three weeks.
At a conference in Uukden--notenorthy for the presence of the
two exeLenchurinn leaders, Usiung Shihehui and. Tu 11-ming--the Generalissimo
was snid to have scolded Chen Chong for his inefficient leadership. He.
also insisted that Changchun and Kirin be defended and that the keining
(Feiping-Lukden) railroad be Opened.
In Nopeh, the government cleimed several victories in the Faoting
area, while the Communists crossed the Llachang Canal south of Tientsin and
threatened the Tangku area. Fighting continues in both sectors. Shansi
governor, Yen Hsieshan, was reported on the move for the first time in
months as his unies advanced teroard.Linfen? which is surrounded by
Communiets. At the week's end rationalist unite were still trying to open
the Iinehan railroad between Chenehsien and Hankow. Cceinunist unite south
of the Lunchai railroad remained coMperatively quiet.
IntPrAalet914.tlq41,
?????????.ftwammwer????????mme...
Sane results of the election of National Assembly uenhers have
. been announced be the National Government, with returns thus far. indicating
that the expected lnnuslide for the Kuomintang has unterialized. ? Henever,
the claim by the rational Government that 150 million votes were oust may
be discounted. The actual number cast is difficult to estimete? but pro-
bably totals less the' one-third of the government's figures. nile the
election. might have had some effect in stimulating the political awareness
among some Chinese groups, it is apparent that the arbitrary Method of
selection of candidates, wide-spread corruption and election irregularities,
and the use of intimidation and family and,. local claims to personal alleeie.
ance, ell testify to the election of Kuomintane-doeimated National Assembly
which is far from rceresentetive of public opinion in China,
Chinese nenepapers in Hong Kong published lively comments on the
formation of the "democratic revolutionary group". Papers controlled by
the Kuomintang cher. ed that the group was Comemmist inspired and directed,
while the opposition professed to see in the &roue a revolt of liberals
against the terenny of riehtewine olementa. The Hong Kong press also gave
considerable eiace to news about the opening of the Denooratic League's
third plenery session, but this development was ignored on the Luirelend,
eeeeet for ntteetion elven it by a Soviet--owned Shenchni daily. The official
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JZWIlii
ere.
cuorJnC Yang Jih leo finally commented on the Christees statenent
of L:ex Pse-tungs ef the Chinese Cut lerty, which huu been up to
that tire ignored in news an editoriels. The account, however, vi oiled
clown to tao peragrarhs and only two proposals (the sueeestion of a "Comin-
tern" for the Fur Last aria the proposed correction of "erroneous" Chinese
Communist thinking) were gives .mention, after considerable distortion.
This inadequate sueeriery ;Jos lapelled the new "traitor line."
t;xternal kolitical -
A Soviet 001.1rWin Chin has revealed that a new mass repatri-
ation of SovieVcitieens will take place in the spring of 1948 and eill be
followed by siteiler official offers of repatriation to Folee, Czechs,
Yugoslays, Rupanians and oitizens of other Soviet satellite states. How-
ever, Tess is to rainat full strength, according to this .report, and
the activities of Tergpredstvb will Lei increased bythe unofficial partici-
pation of representatives of the satellite ututee. It hue Wen learned
from another Soriet source that 4 Toegpredstvo oft ice recently has been set
up in Canton, iarking 4 major penetration of South China by the Soviet
trade oneanization.. According to the aeme source Torgpredstvoyi represene
tetives are no longer permitted to operate in Ming Kong.
?The eviction by the Hong Kong authoritiea of a number of Chinese
squatters from the arca formerly known as the "Kowloon -aelled City"
(juetified by the British on health and safety grounds) which resulted in
.proteets.to the British. Erabussi from the Nanking Foreign Office early in
Leeember and ?January, has become the excuse for rioting in Canton on 16
&emery, and demonstrations in Shanghai on the lath. .The rioters in Canton,
composed of students, labor unioneers and hoodlums, invaded and burned the
British Consulate and a number of British commercial houses. Four non-
official Britons :ere slightly injured. ? -
Governor T. V. Soong of.Kwangtung informed Linister-Counsellor
Clark that he and the Governor or Hong Kong had agreed to "let sleeping
dogs lie" eith reference to. the Kowloon evictions. He blamed the Coraluniste
for, the outraee but expressed 'abject apologies to the British Consul
General, assumed responsibility for the pretection of British lives and
property, offered to pay compensation for damage, and promised severe
punishment of the offenders.
The British Ambassador protested the outrage, eliciting a state-
ment of regret from the Chinese Government and an order to local authori-
ties to protect the .British..
In Shanghai mobs of students anu others demonstrated before the
Americanend British Consulates shouting charges of "imperialism", but were
prevented from entering thee premises by strong police guards.
These incidents at Canton am' Shanghai have all the hallmarks of
inseired outbreaks. Legalistically speaking, the Chinese Governr.tent may
be correct in cleiming jurisdiction in the former "Kowloon 7:a1led City" in'
suazr
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SLCAil
conformity with a provision in the Sino-British Convention of 1898. How-
ever, the Hong Kong authorities subseeuently denied this "right" uecause of
the resistance of Chineve-arnedTerces to the British occupation (in 1899?)
of the New Territor ies leesed under that Convention; and as the Chinese
Government appears to have tacitly aceulosced in that denial during the
intervening period, the British mey be putting forverd a cluim.of pre-
scriptive right in that area. Generally speaking, the Chinese are besi-
callyeenophobic and therefore receptive to ch es of "foreign imperialism".
This is true, especially, of student groups and other nationaliet organi-
zations. So it would seem that this outbreak has been promoted by the
skilful transformation of their indignation against the delinquencies of
the Nationalist Government into resentment of "British Ieperialism". Doubt-
less anti-emericeniam could be engendered by the sagg play on prejudice and
with the same facility. Therefore, the real motives for the aeitation
aeeinst the British action in Kowloon and its unpleasant denouements must
be sought in (a) the desire to distract the popular discontent from the
foibles and maladministration of the Nationalist Goverment and to avoid
a dePostration egainst that government; (b) the desire of political foes
(including the col:ramjets) to embarrass Chiang Kai.Shek and his immediate
entourage, especially T. V. Soong, the Governor of Nwangtung; (c) the
dissatisfaction and jealousy of 'outside elements over the smuggling traffic
from Hong Kong with its large profits.
The disturbances at Shaeghai, including, the demonstration beJere
the American Consulate, serve to support the belief that communists have
seized on the occasion to disconcert the Nationalist Government. However,.
emerican officials at Canton disagree with the assertion that communists
had instigated the disturbances there,for the following reasons: (1) stu-
dents had given tnrnine that "will of the people vies going to be expressed
in a determined manner" and advising that 'British officials should be eva-
cuated to Hone amg; (2) absence of precautions by Chinese authorities,
and delay in arrival of substantial police end troop reinforcements;
(3) American property and flag carefully respected, with exception of
.residence of American Assistant Eilitary Attache, which caught fire from
adjacent British buildings; (4) Britieh in Hong Kong have been playing
along with communists; (5) British Consulate prime objective, unlike Come.
muhist type of action; (6) agitators ;Jere from goverment organieetione
and Canton municipality deemed to be sufficiently Kuomingtang dominated .
to thwart any large coomunist demonstration.
..conomic
Curreem. The ckvernmont raised the official US dollar exchange
rate from E1nb?000? 'which tas established on 30 December 1947, to
CN 025,000 on 12 January 1948. The Shanghai US (si blackmarket rata opened
this week at CH 0.52,000, then fluctuated widely reaching a new high of -
CN C210,000 before leveling offat GN 4;180,000 on 17 January 1.948 folloning
reported arrests of 200 blackmarket dealers,
The government new requires all banks and insurance companies
to submit detailed daily reports on all trade Loans. -
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b.tX;AU:OT
Prices.' Coomodity prices eentinue to rise in spite of police
controls and the government's tight money policy. After rice hit an an-
ti= high of CN 4e580,000eer pieule reeve :Al of Shanghai placed a ceiling
of CC ;,1,500,000 per picul on this essential item. Rice dropped on 16
January 1948 to CH a?400,000 following the arrival of large Shipments
at. Shanghai. Higher prices are expected before the Chinese Hee, Year
(10 February)' settlement period is over.
Budget. The Hationel Government aleroved an interim budget
covering operateens for the first six nthe of 1948. 1,,cpenditures are
fixed at, C 96 trillion uith revenue at CN v58 trillion! Ho disclesure
uus made es to how the government proposes to meet the deficit of CH 03$'
trillion; it is apparent, houever, that strong reliance is placed on US
.aid. The announced 40,; of .expenditures for military purposes is considered
unrealistic in the light of the approximate 75;1 spent in 1947. The new
budget provides pay rise for government workers, but cuts departmental
staff forces by 25:4 a reduction long ordered but never carried out. '
.Industry. The National: Governeent in taking over the cotton
industry has, ordered the registration of all raw cotton in Shanghai. It. is
reported that 8(41 of the stock is being hidden .and that the farmers are
holding back core, all of which-reflects the Chinese businessvan's lack
of confidence in the government.
The .Chinese Government reports that the first .
shipment of Japanese reparations e including 17 'munitions plants, and 8,200
machines, has left Yokosuka, Japan, for Shanghai.
figeollee. Frovisiens of the Hong Kong China anti-smuggline
agreement have been announced as follows: (1) Hong Kong is to restrict
loading of vessels going to Chine to certain designated centers so Chinese
Customs ei11 have Lhe liberty to check and inspect cargoes; (2) Chinese
Laritiee Customs are to establish Hong :eong centers to naintain a customs
stuff to collect or assess Chinese cuetoes duties in advance; (3) Hong e
Kong harbor muster is to refuse cleerence to any Chinese port save those.
agreed upon; (4) Chinese customs are to be permitted to .enter certain areas
in Hong Kong w. tors for patrol exaMinations; end (5) Hong Kong is to re-
strict the export of goods to China across the northern land frontier at
deeignated Foints..
The Einistry of Communications has
approved an increase of 70e.J, in fare and transportation rates effective
15 January 1948.
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et ? ??
The BIJ
strength strength of Burmere Communist groups is one of the major problems
facing the newly-independent Goverment of Burma since, in aore parts of
central Burma, these groups have beccee atrorr enoueh to chellengc govern-
mental authority and admieintration* Some lieht has been shed on the depths
of understanding of Communism and the eillineeess to support it on the part
of the Burmese, eighty per cent of rhom are aerarisn. Recently a Burmese
Communist when questioned on the orinaiples of Karl 7:arx answered that they
were: (1) no rent; (2) no taxes, and (3) a hie prioe for rime*
PHILIPPI.=
Constabular, begins new drive* Nineteen companies of the Philippine
Constabu ary, direo 15TYFrio (13k1 :astaneda, launched a new offensive.
on 12 January aimed at the capture of Leis Taruc, leader of the dissident
agrarian Eukbalahap. This nee drive, ,--.11eled "Operation :7ystery," oolls
for fifteen to thirty days of Aeld operation2. Launching of the new
offensive followed closely Tarucos recent refusal to surrender thus apparent-
ly ending current attempts of administration loaders to solea the law and
order problem by negotiation*
Surplus ammunition puree-lead from TJS. President Roxas-has accepted TE
terms in connection with a purohaee of approximately 92,000 long tons of
surplus DS ground and aviation ammunition throoeh the Office of the Foreign
Liquidation Commissioner. Terms of the contract, which was signed in
Washington on 19 January, are not yut available but earlier US action approv-
ing the transfer specified that the ?hilippine Government aeree (1) to
demilitarize the ammunition: (2) thet none of the ammunition will ever be
delivered to any other eovernmont in a non-demilitarized stete. The Phil-.
-ippine Government, subject to the terms in a formal contract, intended to
salvage the powder for industrial mos in the 2hilippinee and planned to
sell the metal scraP to private US firms.
Laai5ation of ',88 million Export-Import Bank loan authorized., Presi-
dent floras has authorized Ambassador Mizalde to apply for a 30 year loan
of $88 million for a power developrent program which was proposed in a '
survey made recently by Ttestinghouse 31ectric Coepany. This loan is the
first in a series to be sought for a long range Philippine industralieation
program,
MI ZEALAND -
The Soviets have recently purchased betneen 20,000 and 25,000 bales of
-wool from New Zealand. Before Ziorld ifir II t.ho USSR did not appear in trade
statistics*
man.1.0.1.31
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