INTELLIGENCE HIGHLIGHTS NO. 53 25 May - 31 May 1949

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01082A000100020008-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 12, 2016
• Document Release Date: June 13, 2001
• Sequence Number: 8
• Publication Date: May 31, 1949
• Content Type: PERRPT

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PAR EASTA'ACI I, aPArCH
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OFFICE OF REPORTS AND ESTIMATES, CIA
FAR EAST/PACIFIC BRANCH
INTELIaGENCE HIGHLIGHTS NO 53
25 May - 31 May 1949
SECTION I. SUMMARY OF FAR BAST TRENDS AND DEVELOPMENTS
While the USSR proposal of Japanese peace treaty discuenion before
the CFM offers ammunition to the Japanese Communist Party, the reaction
of oonservetive Japanese elements has been unfavorable (p. 2).
The puppet regime of northern Korea, playing on Repeblinan fears of
the growing power of Communism in Asia, is sponsoring a "unification"
drive. Thus far, response from southern Korea is limited (p. 2).
Some five weeks after the initial Yangtze crossings, the Chinese
Communists have orowned their conquest of the valley with the capture
of lexaghai. Failure to destroy Nationalist forces in the area, home
ever, has kept their victory from being complete (p. 3). Meanwhile,
the escaping Nationalist defenders have scorched or removed many of
the valley's port and transportation facilities (p. 4).
A difference of opinion between the Frenoh and Bao Dai' e Vietnamese
supporters regarding implementation of French agreements with the ex
Emperor may delay establishment/of the provisional government (p. 6).
Jose Laurel, VacionaIista candidate for presidency of the Philippine
Republic, has outlined his intended campaign platform (p. 7).
The marginal notations used in suooeeding sections of this Weekly
("A", "B", or "C") indicate the importance of the items in BAFE opinion
with "A" reprceenting the most important,
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SECTION II. DEVELOPMENTS IY SPECIFIED AREAS
GENERAL
KOREA -
?????????MAMINI?
Northern regime promotes "unification" front--On 17 May, Radio Pyongyang
1-7-o-irreposal from various southern korean political and social
groups for a joint North-South conference of political gre.us for the
purpose of promoting unification of Loma. The proposed me ting -erne
held subsequently in Pyongyang on 26 May and officers were ,amed to
draw up a preqram for the preparation of an inaugural convention of the
"Democratic Front for the Attainment of Lnification for the Fatherland."
This program is to be submitted to the second meeting of the preparatory
committee early in June.
Following the completion of US troop withdrawal from southern Korea
during the next few weeks, the pressure of rising Communist power in
Asia rill be increasingly felt by the leaders of the Koreen Republic.
The northern puppet regime may well be anticipating an increased will-
ingness on the part of southern politicians to make their peace with
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with the north through the convenient instrument of a "unification
front." This latest Communist-sponsored frose movement is probably
designed as an opportunistic vehicle for southern Koreans who may
wish to board the northern Korean bandwagon, At prosent, the move-
ment is receiving support in southern Korea only from the underground
Communist front organizations. Both Kim Koo and Kim Kiusic, who
went to Pyongyang in 1948, have issued statements characterizing
it as a Communist fraud.
CHINA
1iliy Situation?With the occupation of Shanghai on 26-26 May,
the Ghthece Communists oompleted their current offensive in the
Yangtze valley. Within 36 days after initial crossinge, they occu-
pied Nanking, Hangchow, Hankow, Nanchang and Shanghai, thus securing
all of the valley's large cities with the single exception of Changshas
The Communists failed in another mselor objective, however; they were
unable to neutralize the Nationalist forces defending the valley.
"A"
atm222.1 After being delayed temporarily by an unexpected Nationalist
defense in the northern section of Shanghai, the Communists outflanked the
lightly-held Government positions north of Scochow creek, forced their
capitulation and completed the occupation of Shanghai. Meanwhile, other
Communist units drove west across the mouth of the Whangpoo River to
occupy Woosung and cut the Nationalist retreat route. This move came
too late, however, to prevent the escape of large numbers of Nationalist
troops, sho joined the Nationalist evacuation fleet moving south toward
Taiwan and Fukien, after destroying military supplies and installations.
South China: PAI Chung-hsi, who was not subjected to a direct attack
at Tre701777;73-able to MOW almost his entire force south from the l'ane-
tze towards Rwangsi, his home province. The Communists contieued to
fo?low cautiously in his make, but so slowly that it appeared PAI woead
reach defensive positions near the border of Kaangei before they overtook
him. PAI is expected to fight in defense of his native province when the
Communists finally move into position to attack. Further east, Communist
General L/U Po-cheng's troops were quiescent in southern Kiangsi and
northeruestern Fukien for a second week. Nationalist claims that they
had reoccupied Nanping, 85 miles upriver from Foochow in Fukien were
countered by Communist accounts of successes further to the north where
Ningpo, an old treaty port in Chekiang, was reported taken.
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Northwest China: Despite confliotinn reports, it now appears that
the Communists have, in fact, occupied Sian, the capital of Shensi, and
that the Nationalist troops of ITV Tsung-uan have withdrawn eouthwerd.
A Peiping report states that l)EVG Toh-huai will be joined by UXEH Juna-
ohen in an offensive in this area. It is as yet unclear whether the
eventual direction of this strengthened Communiet force will be south
to Szechwan or west into Kansu.
Nationalist Demolitions:--Not sinoe the Soviet sack of nanceuria has
"517;77077Firwar damage as extenetve as that of the past fortnight
in. the Yangtze valley. Retreating 4tionalists destroyed or removed.
port and transportation facilities as well as river and ooeun shippirg,
They scorched the largest shipyard in the Par East, Xiangnan dockyard
in Shanghai. Warehouses, warves and oil-storare tanks in lower Pootung
were also damaaed by shell fire.
The destruction inflicted on the Nanking railroad statien and adjoin-
ing piers and ships in the latter part of April was the firet indication
that the Nationalists would not abandon the Yangtze area in the save quiet
manner as in North China and Manchuria, On 16 May, the port of Treekare
was reportedly crippled by the destruction of most of its feoilitios
when 24 vessele wore scuttled in the harbor.
Shanghai, howeeer, suffered the neat. Deetruction of the Ydananan
dockyard, on 22 May? eliminated facilitiee eapablo of beildieg some
100,000 tons of shipping a year and repeieing hundreds of smIll veseels.
Many ships in the Whangpoo ',deer were burned? scuttled or cast adrift
by the Nationaliet defenders. In addition, the Nationalistc reportedly
destroyed military installations at and around the Kiaegran eirfield as
well as shipping facilities at Woosung? near the mouth of the Whangpoo.
The Nationalists seemed primarily interested in preventing tle Communists
from inheriting intact the extensive shippinn, port facilitirs and niii-
tary supplies in the Yangtee area and little effort was made to destroy
large factories and utilities?
Local currencies to re lace G. Y Th.e 'variety of currency an non-
ommun ot Cline 'oday re cote he fragmentation of the economy that has
followed the disintegration of cent-mi authority. Since the gold yuan
has become almost valueless, local areas have been left witheut an ade-
quate medium of exchange and are now taking upon themselves 'he tack of
creating a new circulating medium. If tho present trend of events
continuee, each non-Communist province will have its awn monetary unit
and trade between provinces will be handicapped both by the lack of uni-
form currency and by provincial efforts to maintain the valu, of local
currency by prohibiting the export of specie.
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In the southeest, delegates from Steohwan, Sikang, Kweiohoye and
Yunnan are meeting to consider plans for political and economic auto-
nomy. Plans for exclusion of the gold yuan, establishment of a joint
treasury for the area and issuance of a silver certificate currency
have beendimmed.
Meanwhile, as a temporary measure, individual municipalities are
contemplating issuance of local currency. In Chungking, the mayor is
backing a plan for the municipal bank to issue silver notes against
deposits of silver. In Foochow, the Chamber of Commerce is reported
te have issued a local ourrenov,with silver backing.
In Sinkiang, silver has been replacing depreciated paper currencies.
Because of its scarcity, however, silver alone does not provide the pro-
vince with an adequate circulating medium and the banks have supplemented
the circulation of silver by issue of silver notes, purportedly redeemable
in specie on demand. To prevent a drain of specie from the province, a
ban has been imposed on the export of silver. To the extant that this ban
can be maintained, trade between Sinkiang and other regions will tend to
fall into a barter pattern.
It is unlikely that provincial and municipal silver notes can long
circulate at face valuee The banks do not have large enough silver reserves
to provide the basis for any considerable circulation of paper money. The
inability to muster sufficient reserves derives from two factors; first,
the scarcity of the metal in the provinces and second, the extraordinarily
high reserve ratios which are now necessary if the paper currency is to
maintain its face value. In fact, with the present low ebb of confidence
in the stability and security of local government, it is doubtful that a
reserve ratio of much less than 100 percent would be adequate to maintain
the face value of such ourrency.
NEWS NOTES
Cabinet falls--Resignation of HO Ting-chin and the attempt a; appointment
irtfrreriEez: colorless Kuomintang elder, as HO/s successor mark a further
weakening of the Nationalist political structure. Although HO may remain
as minister of National Defense, his resignation as Premier evidences hie
unwillingness to continue at the head of e hopelessly feeble and divided
administration. Nomination of seventy-two-year-01d CHU. former President
of the Judicial Tian, indicates virtual exhaustion of Acting President
LI's political resources* Meanwhile, right-wing Kuomintang leaders oon-
tinue their efforts to restore CHIANG Kai-shek to open control of the
National Oo-ernment? possibly through creation of a new policy-making
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6 ,a
body which mieht give some appearance of Kuomintang unity. MANG
still remains somewhere in the Taiwan-F000howeAmoy district, however,
apparently awaiting the further loss of prestige which 1I,s regime
will suffer when it flees Canton. At that time, CHIANG may heed the
pleas of his closest associates and resume presidency of whatever
remains of the Nationalist regime.
USSR curtails activities?During the past weekend, the Soviet Consulate
in 'shanghai was closed, activities of the Shanghai office of the offi-
cial Tess News Agency were suspended and Ambassador Rosohin, only toe
dlelomat to follow the National Government to Canton, departed for Heeg
Kong en route to the USSR.
INDOCHINA
Division over Auriol-Bao Dai agreements--A conflict of opinion has
arisen be en of ioials a the ,rench Overseas Ministry and the Viet-
namese who are supporting Rao Dai as to ratification of the 8 March
Auriol-Bao Dai agreements by the French Government. According to the
Vietnamese Governor of TonUin, Bao Dal 11111 remain officially inactive
until after formal French approval of the agreements, an action which
the Vietnamese anticipate at an early date. In contrast, officials of
the Overseas Ministry in Paris have indicated that the agreements will
not be submitted to the French Assembly for approval, but will serve
instead as the basis for negotiation of a formal treaty.
The French timetable for implementation of the Bao Dai experiment
is based on the theory that the ex-Emperor did not sign the agreements
as a chief of state but merely as the "most representative element of
Vietnam." Thus, officials in Paris do not wish to "impose" these "in-
formal" accords upon Vietnam before a "freely-elected" government has
been established. Instead, they wish Bee Dat to create a "provisional
government" which will operate until the formation of the French-
envisioned 'popular" government. At that time, consideration will be
given to a permanent treaty incorporating the June 1948 Bate d'Along
pact, the 8 Mardi agreements and supplementary conventions treating
with details. The target date for completion of this treaty is 31
December 1949. It is stressed that France considers an enlargement of
its 8 ?larch concessions a distinct possibility.
Latest reports from Bao Dai ''s secretariat indicate he will announce
a small provisional cabinet soon after final French Assembly approval
of a bill permitting unification of Cochinchina with Tonkin and Annan.
However, Bao Dal's plans seem to be based on the expecte-tic of early
ratification of the 8 March pact as well. They may possibly be deferred
indefinitely when it becomes apparent to him that the French schedule
does not include this ratification.
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PHILIPPINES
Nacionalista alatform to be dictated bi Laurel?Shortly after his sslece
on as e aolona.ista arty nominee for President, Jose Laurel stoted
that his personal ideas would form the basis of the Partys platform.
In a press statement issued on 23 May, the day after his noeination?
Laurel defined these "personal ideas." He again denied that he was
anti-US and stated that he favored continuation of friendly US-Philippine
relations on a basis of mutual advantage and reciprocity. However, he
insisted that certain agreements (presumably military and trade treaties)
should be revised. Laurel hinted that Philippine foreign policy wouldbe
nationalistic, with greater emphasis on relations with Asian countries.
In considering internal policy, he specified the economic situation
as the most important problem and warned that the Philippines may face
a severe economic crisis within the next five years unless "radical
remedies are emphatically applied." Laurel attacked Quirino's policy
regarding the Huks and said tha problem should be more carefully studied
and whatever policy adopted should be "relentlessly implemented to the
bitter end." He said his administration -would concern itself with the
welfare of the sommon people and include more liberal plan e for the dis-
position of public agricultural lands
The ineffective legislative session, which concluded on 20 May with-
out action on any major issues, as well as the record of political bickering
within the Quirino administration has given Laurel the opportunity to
develop an effective platform during the coming months. Prospects for
Naeionalista success in the November elections, moreover, are strengthened
by the continuing split in the majority Liberal Party.
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