OFFICE OF REPORTS AND ESTIMATES, CIA FAR EAST/PACIFIC BRANCH INTELLIGENCE HIGHLIGHTS--WEEK OF 18 MAY - 24 MAY 1948

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-01617A004600020006-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 27, 2016
• Document Release Date: March 21, 2013
• Sequence Number: 6
• Publication Date: May 18, 1948
• Content Type: REPORT

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OFFICE OF REPORTS AND ESTIMATES, CIA
FA )1 EAST/PACIFIC BRANCH
HIGH IGHTS--ITEEK OF 18 MAY - 24 MAY 1948
3 ::..'ION I, 11r GI 'IF FAR E..ST TRENDS AND DETELOFT3'TTS
The Japisane C.)vernment is considering a plan ta exclude Communists
r "On certain Iub1i< ffioee 'lute in view of possible Soviet retaliations,
t.,1 unlikely t.c impl,rnent it iefore the roughly 700,0)0 Japanese have been
repain-ia bed :tom Sc viet-oontrolled areas, or until tie USSR indicates that
no further rdratrie :ions will be made (page 3).
In the ;:cuth Korean elenitions of 10 May, neither of the two extreme
rifttist gro;14.-Rhce Synemanis National Society ani the Hankooks--wen a
ne.;.,..rity? an the balance of power in held temporarily by the smaller
rirt.tist pow/ e. The Hankootos have the capability 3 undermining and
seikirg Rhos'e present dominant position in any future political crisis
3)
Chiang 141...eheicts inability to tSc ntrol the Kuondntang effectively has
been demonstrated by the serious int:IL...party struggle over the naming of a
new premier. This etrurgle, involvin; key figures upon whom Chiang has
relied for years, s;),,aars to be a serious challenge to his position of
leadership (page 4),
In Frenot Indochina. Ho Chi Binh is expected to launch a ceunpaign of
prcpaganda sh,:e terrar in response to the formation of a new Frenoh-sponsored
V-..*traun loverrnent under Cezrral Xuan (page 6).
A Ditch sove to by-pass the Indonesian nenublio is evident in a "Federal
::,n-l'erenoe" .C4 big convened i tch-held Java on 27 :lay, apparently without
Tlepublia represents-don (pag. 6). As reported in tin CIA Daily Summary of
BS ray, Dutob resumilion of "polio? action" in the 31/0.r future is much more
probable than is a txmoeful lonolusion of Dutoh-Repiblio political agreement.
In the Philippines, pea:Jeful settlement of the law and .order problem has
beer rendered less .7.ikely b the open insistence by Taruo, Hukbalahap leader,
that the Iluki have.;ho rightt to_ bear arms page 7)0
Docten NO 00
NO CHANGE in Class. 0
m DECLASSIFIED
class. CHANGED TO: IS S C
DDA Nemo, 4 Apr 77
DDA REG. 7
D41,y, 2 IFEB 1978Byt
In suoasedini section-nT-tmxv-4-mesay. the l'oLlowing marginal
notatLzes are., used*
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IMIRIDON1 OOP
'I) An aiiterisk (*) To indicate tht:',; all or part of an
bas, d solely upon inforwA :Len from Statees
ubion" series.
z) "1." '13". o:- "C" Importance. in H/FEts opinion, of
tilt item, with "A" representing the most important ones.
Tffiele)
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-2.
SECTION II. DEVELOPMNTS IN SPECIFIED AREAS
GENERAL
Strong opposition to proposed Japanese whaling expedition
The UK* Australia, New Zealand, and Norway have voiced strong opposition
to the contemplated authorization by SCAR of a Japanese ahtaretie whaling
expedition for the 19484949 season. Earlier expeditions, although smaller
than the one now under consideration, had dramn vigorous complaints from
these same powers. If the current expedition, presently favored by the
DS Department of State as well as by SCAP, is authorized over such objections,
repercussions of the controversy may be felt in the discussions now taking
plaoe concurrently in Canberra* where UK and Australian representatives are
deliberating on a joint British Commonwealth policy toward the future of
Japanese industry.
Contentions of the opposing powers, taken together, are: (1) Japanese
partioipation in antarctic whaling is properly a matter of principle whioh
should be decided by the Far Eastern Commission; (2) the proposal to enlarge
the expedition would place Japan in a more advantageous position vis-a-vis
the other whaling nations than it enjoyed before the Tar; (3) Japan's
whaling record has been one of ruthless disregard of international whale
conservation regulations; (4) Japanese participation would mean that the
catches of the parties to the International Whaling Convention would be
diminished because no increase in oversell quota of blue whale catch is
possible; (5) Japan's needs for whale oil can be better provided by the
other nations; and (6) whaling products obtained directly by Japan will
reduce the amount of hard currencies that could be obtained by the UK and
other whaling nations.
Australian mission headed b McMahon Ball beins sent to Southeast Asia "WI
An indication of the importance which Australia attaches to its relations
? with Southeast Asia can be seen in the educational and relief mission which
is leaving for that area on 27 May. The mission, headed by William McMahon
Ball, includes am' educational and supply officer and a representative of
Australia's Department of External Affairs. Ball, who was formerly Australian
representative on the Allied Control Council for Japan and who resigned
following policy disagreements with Foreign Minister Evatt, returns to
governmental service via this mission. The annaunoed purpose of the mission
is to select 25 students from the Southeast Asia countries for study at
Australian universities on Goverazent aoholarships and to investigate the
need for distribution of relief and educational supplies. However* Ball may
also be interested in opening up commercial opportunities for Australia in
the area.
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-34
JAPAN
Japan considers barring Conmunists from public office. Primo Minister
ATATDA revealed on 19 May that the Japanesegoveri?ieiit has under consid-
eration a plan for excluding Communists from public office. "If public
servants engage in activities running counter to the welfare of society",
ASHIDA said, "they will be controlled rigidly, whether they are Commun-
ists or not." Inasmuch as a Constitutional amendment night be required
to eliminate Communists from elective office, a governmental bar, if it
materializes, would affect only appointive officials and the civil service.
The announcement probably was intended to: (a) threaten the Japanese
Communist Party (J.C.P.),mbose activities have gradually increased in
temp4in:1th retribution if the M.P. fails to moderate its actions; (b)
act as a trial balloon to obtain US reaction to such a ban; (c) test USSR
reaction, the Japanese government being ever mindful of the approximately
700,000 unrepatriated Japanese still in Soviet dominated areas. In view
of the repatriation factor it seems improbable that any Japanese govern-
ment will risk a ban on Conmunists in public office before repatriation
is completed. The wave of popular resentment against any Cabinet respon-
sible for the USSR's canceling of repatriation would force the government
to resign. When repatriation is completed or when the Japanese govern-
meant feels the point is reached where the USSR will return no more Japan-
ese, and if the government is permitted to act as a free agent, the out-
lawing of the J.C.P. may possibly be expected.
KOREA
Neither the Hankooks nor Rhee Synnman's National Society, the two major
Lay e ectlons n SoUEE-nrea.
Atoug so-ca e. in.epen ens o ? apura.iyosea s,amere realis-
tic break-down of the election results indicates that the Hankooks and the
Rhea machine will have about equal strength with the balance of power held,
at least temporarily, by the smaller political parties. Kim Koo's Korean
Independence Party is the largest of these lesser Groups. If Kim, despite
his attendance at the Pyongyang conference, still has authority in his
party, he may be able to utilize to his own advantage the stalemate of
the major groups.
rig
tis
groups,
secure
a
masority in
Rhea, who derives his strength from his extensive political machine,
was expected to win a Generous plurality of seats. However, his present
parity with the Hankooks is dependent on the precarious support of ambi-
tious General Lee Chung'Chun's Dai Dong Youth Party. Moreover, it is
possible that in their long-standing contest with Rhee for political
supremacy, the wealthy Hankooks have been able to infiltrate and capture
some parts of Rheees machine at the lower levels. For?the present, how-
ever, the two groups will maintain an uneasy coalitioniwith the Hankooks
supporting Rhee for president. Rhee will attempt to got himself elected
as a "strong" president on the "American" pattern while the Hankocks will
struggle for the adoption of the "French" system with Kim Sung Soo as
premiere Although Rhea may be successful in this initial struggle, should
his egocentricity produce an eventual political crisis (e.g. frustration
of any future US aid program), the more astute and flexible Hankooks will
have an excellent chance of seizing real control of the governnent9leav-
ing the obdurate Rhea in a position of prominence only at their sufferance.
"Hu
"A"
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6510143
CHINA
Struggle yeti= lateellettag
Chiang Kaieshekos difficulty in forming a new cabinet for China has "AP
revealed a serious struggle within the inner circle of the Kuomintang.
Apparently Chiang no longer has unthallanged control over the Party and his
inability to rely on the support ofoartainkey Party leaders from whom he has
drawn his strength in the past is a more dangerous threat to Chiang?s position
than that presented by any liberal opposition under Li Teung-jen.
The present struggle has stemmed from the Legislative Yuan which is con-
trolled by the conservative CC Clique and must approve the appointment and
actions of the new president of the Executive Yuan. The more likely candidates
for the position, Chang Chun, Ho Yingechin and T. V. Soong, were all reluctant
to accept the position since they doubted their ability to command a majority
In the legislature. The appointment of Wong Wen-hao to this position, which
was approved by a large majority of the Legislative Yuan on 24 May, was only
a compromise and has not solved Party differences.
Wong Wen-hao, an outstanding Chinese geologist, chairman of the National
Resources Commission and .a follower of T. V. Soong, is considered an able and
honest administrator. Despite his association with the Political Science Group,
he has remained outside intra-party rivalries, but with no political following
of his own, be may be relied on for his loyalty to the Generalissimo rather
than for any independence of action. His position will be difficult since he
will be subject to pressures from Chiang on one side and the Legislative Yuan
on the other.
2arttat =mita IA China
Widespread Communist offensives, anticipated for the month of May, have "AP
failed to develop and the Chinese military scene during the past week continued
to be permeated by a general attitude of expectancy. Military activity was
confined to the general North China area around Peiping and to the Central
China area northwest and west of Hankow and involved comparatively small
numbers of troops. In the latter area Communist units, reportedly irregulars,
captured Laohokou, important Han River city, looting important stores of food
and materiel. One source describes recent Communist activity in west Ronan
BS a foraging expedition, necessitated by supply shortages in the Tapiehshan
area. According to this interpretation, the Communist timetable for the
crossing of the Yangtze River has been consequently disrupted.
As yet no broadscale fighting has broken out on the Manchurian front
where the main Communist regular troop strength is as yet uncommitted but is
moving westward to the Chinchou area. The Communists in North China have
been harrassing all railway communications leading out of Peiping, apparently
&ZORN
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-5-.,
in preparation for the Manchurian offensive. Communist troops attacked the
western outskirts of Peiping, isolated Kalgan and Chengteh,'dontinue to
threaten Tatung, and, following the capture of Linfen, now menace Yen Hsi-shan's
stronghold at Taiyuan. These 'actions suggest that the Communists are presently
attempting to draw Fu Tso-yi into the mountains on the Hopei-Chahar-Suiyuan-
Shansi border in order to inflict as heavy losses as possible upon his troops
before bringing the battle into the coastal plains surrounding Peiping and
Tientsin. These Communist efforts will utilize only a fraction of available
Communist troops with the majority being reserved in western Liaoning for
action when the Nationalists begin to move troops to save North China.
Change la Silabnkungaatla-a and .9424.? 44.11dAntdiValLeR is indicated by "B"
persistent rumors that the National Government is about to relieve Wang rao-wu
of his military command (2nd Pacification area) and the governorship of
Shantung. One of the more able Government commanders, Wang has been actively
considering the establishment of an autonomous regime in the key province of
Shantung under his awn leadership. Wang was reported to have been one of the
chief supporters of Vice-President Li Tsung-jen. Li, incidently, has been
notably quiet since his election to the Vice-Presidency and apparently is
coming to the realization that his reforms will be difficult to implement
over the opposition of Chiang Kai-shek so long as the latter still controls
the Army, the Government finances, and the Party machine0
ljaajjadiffjeaa_aelgatioitallIZALktgazat relations has found recent ewe
expression in the Ministry of Information's publication, the Daily Tribune.
Commenting on the newly arrived Soviet Ambassador's statement that the Sino
Soviet -Treaty was a manifestation of friendly feeling, the paper stated that
it could not agree with Soviet interpretation of the agreement; that China's
position would be very different today if Mancharia had been handed over in-
tact to the National Government; and that it would have been easy for the
Soviet Government to have honored the spirit of the Treaty by expressing its
abhorence of the armed (Communist) revolt against the Government of its
"friend and ally". The paper added, however, that the Ambassador's arrival
provided the occasion "to clear up a number of misunderstandings and suspicions".
new import regplation, the Central Bank Circular 131, has created
consternation among China importers. This circular requires an importer to
1) deposit with the Central Bank, at the time of approval of the import
license, 50% of c.i.f, value of import, in local currency at prevailing official
open market rate of exchang, 2) deposit additional margin, as required, when-
ever the official rate is subsequently modified upward, and 3) settle final
foreign exchange, at the time of arrival of goods, at the official rate pre-
vailing at that date.. The announced purpose of this circular is to reduce the
"exorbitant" profits hitherto possible to importers buying exchange at un-
realistic low official open market rates prevailing at time of.lesuance of
licenses and disposing of their goods, upon arrival, at black market level
commodity prices. A majority of the import and banking concerns consider the
regulation unworkable and believe its enforcement will have serious reper-
cussions on the economy. The fact that the regulation was adopted seems to
have impressed observers and Chinese with the stringency of the National
Government's foreign exchange position despite US commodity aid.
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FRTICH TITDr.rHTnA
Terrorism expected as result of formation of new French-enoneored
A campaign of propapVariiirterror, instituted by
Ho Chi Vinh's Viet 'Inh government, is expected as a result o the
formation of a new French-sponsored Provisional Central Government of
vietnam under General "guyen-van-Xuan, general Xuan, a French citizen
and since last fletober president of the Provisional Government of
'outh "ietnam, on 20 -ay was "unanimously chosen" to head the new
government by delegates from Tonkin, knnam, and Cochinchina. The
formation of the Xuan government, which postpones a government under
the former Onnamite emperor, rao Dal, nevertheless has Pao Dales approval.
Furthermore Xuan has announced that he would sin an agreement with
French High Commissioner Pollaert, in Bao Dales presence, on the day
following the nroclamation of the government on the "first lucky day of
the June moon." A French Foreign Office official stated that although
de facto recognition will not now be granted, the Provisional Government
will have the status of an associated state in the French Unien. General
Yuan has pointed out that the evolution of Vietnam will proceed within
the legal framework of the French Constitution, reaching at se future
date full maturity and dominion status otwithstanding these elaborate
plans, neither influential Vietnamese nationalists nor French officials
believe that the new government has nuch chance of survival. The
French, who because of domestic considerations in France are unable at
the present to make any major change in colonial policy which will
involve the granting of more liberal concessions to the new proeisional
government, realize how euickly Viet rinh terrorism could jeopardize
the success of the Xuan regime and have redoubled their security
nrecaueions.
INTriTct"TA
Dutch moves to b, ss the Pe sublic. An elaborate "Federal Con-
ference" to e attenved by the heads of autonomous states and areas is
to be convened on 27 May at Pandoeng?in Putch-held Java, by Lt. Governor
eeneral Van Vook. This conference, to which the Pepublic of Indonesia
has apparently not been invited, represents a Cutch move to strengthen
its influence in the existing Provisional Federal Government. A Repub-
lican request to hold an "All Indonesia National Congress" at rnatavia from "ay
24 to 26 as a counterpoise to the randoeng conference has been prohibited
by the Netherlands Tndies Government on the grounds that all political
convictions will be adequately represented at Pandoeng. These moves
are projections of the basic difference between the Dutch and r'epublican
positions in regard to the 'Republic's status in an interim government.
The Patch objective has been to transfer sovereignty to a United
etates of Indonesia in which the 'Republic would be in the minority.
The Pepublicowhich considers itself the champion of nationalism for
all of indonesiaphas insisted upon representation commensurate with its
influence and therefore has demanded a majority position in any federal
rovernment. The Pandoeng Conference is further evidence that the
nenerlic may be forced to enter an interim government and the United
C7CPFT
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FTC7?1711
-7.
'11-"TA (continued)
states of Indonesia on Netherlands terms or that it will be bv-passed
entirely. If the /enublic is by-passed the inevitable unrest would
enable the Dutch to argue before the United 17ations Security Council
that such disturbances were a civil conflict in which the Dutch would
be obliged to protect their interests. The rP, Delegation of the.
flood Offices Committee takes a serious vier of the l'andoeng conference
and in, an effort to resolve the imminent deadlocktis prepared to offer
a comnromiso plan which contemnlates the establishment of a provisional
federal government on the basis of general elections throuebout the
area without regard for the present state boundaries.
PPTUPPT"7S
Settlement of law and order problem less likely in view of Tarue
letter. The possibility that the law and order problem in the uhilin-
nines will be settled amicably through surrender and the arantine of
amnesty is much less likely in view of a letter which Luis Tame,
sunreme commander of the diesident Nukbalahael is reported to have sent
to an Associated Press correspondent in answer to a series of questions,
Tn this letter Taruc statee that he is still a member of the Philippine
Communist Party, demands the rieht for Was to bear arms reear"less of
property or educational euarfications, and objects to various infringe-
ments of Philinnine sovereignty by the united States. The Fhilinnine
ooverne,entls apnarent mister to maructs attitude has been the we-ointment
or ^eneral luillermo Francisco (Chief of the Constabulare drrinp: the
Japanese occunation) as technical assistant on pelice matters and the
annointeent of Teofilo ison (nre-war secretory of the Interior and
'ecretary of Justice in the Laurel war-time pupeet Cabinet who was con-
victed of treason by the Feonlels Court and later granted amnesty as a
result of a proclamation by the late President roxas) as a technical
adviser to President uirino in charre of nrovincial and rfunicipal
administration.
"B"
AUSTRALIA
Pessimism about UK financial position increases. Australian offidals "C"
are increasingly pessimistic about the U17 financial crisis and continued
dollar shortage. They now see the need for rigid import restrictions
extending into 1950. The problem is not so much one of finding dollar
markets as it is of producing sufficient euantities of goods to sell, It
is complicated by the commitment to supply the TT with all exnortable sur-
pluses of food and by the fact that certain types of essential agricultural
and industrial machinery are only available from dollar areas. If official
fears materialize and the Puropean Recovery Program requires Australia to
live within her own dollar income, the whole pattern of her trade will
have to be reoriented away from the "K, with far reaching effects on
military and political relations within the Commonwealth and towards third
powers.
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SECTION 1110 DIGEeT OF IMPORTANT STUDL.:11 AND ESTIMATES
Stratenic Importance of Jana
Japan's defeat in World Wir II has created a vacuum of power in the
Far East where the extension of Soviet influence and US strategic inter-
ests have been brought into direct conflict. From the point of view of
either the US or the USSR, control of Japan is important to the control
of the Par Eastern area, both because of the island's geographical loca-
tion and because Japan, while militarily defenseless at present, possesses
a large reservoir of trained manpoeor, which, if mobilized and provided
loeistic support, could become a potent factor in determining t'e out-
come of apy future armed conflict embracing the Far East.
The US as principal power in occupution presently controls Japan
the stability of whose new democratic Government cannot be determined
conpletely until the withdrawal of US occupation troops. Given a viable
economy, however, present Jaeanese stability and pro-US orientation
should continue so long as the Occupation remains.
On the other hand, there are certain possible developments which
mould ereatly weaken the US position in Japan anl throughout the Far
East, and to this extent strengthen that of the USSR. Principal amone
these are:
1. Disruption of the Present Status luo in Northeast Asia.
Extension of Soviet' control or domination over North China, Man-
churia, and the whole of Korea would result in an incalculable loss of
US prestige throuehout the Far East. Such a condition night ereatly
facilitate further Soviet extension into Japan itself, which in turn
mould exeedite Communist exeansion in Asia'aeainst diminishine resistance.
2. Serious Deterioration of japan's Economic System.
The key factor in the postwar development of Japan is economic reha-
bilitation. As in the past, Jaean, for normal economic functionin, on an
industrial basis, must have access to the Northeast Asiatic areas - notably
North China, Manchuria, and Korea - now under direct, indirect, or poten-
tial control of the USSR. It is believed that the Kremlin, without serious
effect on its own position in Northeast Asia, could refuse to allow Japan
economic access to these areas if political or strategic considerations so
dictated.
The short-term loss of Northeast Asia trade, though it would make
economic recovery of Japan difficult, mould not render it impossible. It
could be compensated for in part by trade with Southeast Asia and the
Philippine Islands where, however, there mould be, in addition to US and
European coneetition, the possible development and expansion of indi-
eenous industries.
Over the lone term, exclusion of Japan from Northeast Asia trade would
so drastically distort Japan's natural trade pattern that ocononic sta-
bility could be maintained only if the US wore prepared to underwrite
substantial trade deficits on a continuine basis. Should such aid be
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withheld or unavailable, the ensuing economic distress might easily force
Japan to align itself With the USSR as the only means of returning to
economic normality?
So long as this Japanese rehabilitation is under US control, it can
be assumed that Japan of itself, with its basic economic wealmesses, can-
not in the foreseeable future become a threat to US eecurity? Only as an
ally of the USSR, or as part of a largo anti-US coalition could Japan be-
come once again dangerous.
So long as a viable economy for Japan can be constructed and main-
tained, the difficulties facing the U3SR in attempting to force Japanes
acquiescence would be considerable .and could be largely offset through
the adoption by the US of available counter-measures?
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