OFFICE OF REPORTS AND ESTIMATES, CIA FAR EAST/PACIFIC BRANCH

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01090A000400060003-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: November 16, 2016
• Document Release Date: September 28, 1998
• Sequence Number: 3
• Publication Date: May 10, 1946
• Content Type: REPORT

Approved For Release,QUI05/23: CIA-
OFFICE OF REPORTS AND 7,STI1fATE , CIA
FAR EAST/PACIFIC BRANCH
Approved For Release 2000/05/23: CIA-RDP79-010MA000400060003-9
 25X6A
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25X6A ?3-
KOREA
North Korean financial activities in South Korea. The Conmunists are
now seeking new ways finance their c ivities in .south Korea since tie
1003 won notes printed by the Japanese and put into circulation b-.! then in
pre-surrer::der ;1a s were replaced in rril vdtn new f:oreari note:: of the
sae denomination. it is b .J.ieved that 900 zillion won worth of these
Japanese notes were in circulation. in north Korea or in the hands of
North Korean agents in South Korea. The e>:change was effecter.' in order to
eli:ninnte the infiltration of these notes from North Korea to finance pre-
election disturbances in South Korea. The inability of the Cor.!munists
to continue the use of these notes to finance their activities in South
Korea ray have prompted the Soviets to speed the development of a new
three-way trade arrange:.ent. "eports indicate that the plan involves
export of North Korean coTinodities to Hong Kong either direct or via
South Korea. idith the foreign exchange thus acquired goods are bought
and exported to South Korea. The won proceeds from sale of these goods
in South Korea can then be used to promote the Col!nunist program in South
Korea.
Although the Soviet authorities must realize that imr-orts fran North
.,'Korea either directl. : or via Hong 'gong do aid the South Korean ecoromy,
they apparently are willing to accept this temporary disadvantage in order
to help finance their long range program to control all Korea.
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ENTIAL
The Nationalists in Manchuria have lost contact with all but one of
the Chinese Communist columns between Mukden and Changchun. These units
are successfully screening their movements into positions for long expected
attacks. Previously two Communist columns were reported moving into the
Esinmin area and probing attacks were launched on the outskirts of Tiehling
end Fushun. Nationalist commander, Wei Li-buang, although admitting that he
does not know where the weight of the next Communist attack will fall, indi-
cated he believes that it will be directed at Chinchou and the entrances into
North China. Communists in Hopei last week cut the Tientsin-Shanhaikuan
sector of the Paining rail line several times, thereby hindering defense
efforts along that railway further north.
Meanwhile, two divisions of Yen Hsi-Shan?s forces were reported on the
move east of Shouyang. This gave rise-to the speculation that You was at
last committing his troops to battle, which is doubtful. The Communists were
active along a broad arc from Hankou northwest to eastern Kansu. In the
Kansu-Sian area, Moslem troops of Ma Hung-kuei and Ma ft-fang reopened the
SianLanchou highway. Although the Nationalist press reported a sweeping
victory near Sian, it is app rout that tho rationalist position in this sec=
tar has not appreciably improved. Rumors persist that there have'been whole-
sale detections from troops of the Sian Pacification Headquarter-,.Communist
tmi.ts, v;hioh attacked 'Chenghsien, have withdrawn lout east and have
joined other units in a move on the middle Ilan :liver. Several
points in western Eonon and southeast 3henai have already Leen taken;
1 anyang and Laohokou are ciurronbly being; threatened. Approximately
six Communist columns, recently quiesoent in west Shantung, are
reportedly reorossinp; the Lu hai railroad in flonan.
Political
Chiang Kai-shek, now in the process of appointing officials in the new
constitutional government, apparently will retain Chang Chun in his position
as president of the Executive Yuan. Ho Ting-chin, who was expected to hold
that position, has apparently been rejected because the Generalissimo refused
/ to accept his reform program. Li Tsung-jen, the new Vice President, is not
being consulted regarding the new appointments and it appears that Chiang
will attempt to balance the opposition voiced through Lite election by maintaining in the top government positions personalities upon whom he has relied
in the past, despite their ineffective records. After a conversation with
Chiang, Ambassador Stuart finds "it difficult to believe ... that he has
any intention of really instituting necessary. reforms."
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 Approved For Release 2/05/23: CIA-4 R f NO 3-9
The new Legislative Yuan met for the first time on 8 May with 370 out
of 773 members present. The minor parties are boycotting the sessions
because of the dispute over the distribution of seats. The name of the new
premier will probably not be eubmittad to the Legislative Yuan for approval
until the inauguration of the President and vice-President now set for
20 May. It appears that formation of a new cabinet will be delayed until
then.
Senior Democratic League leaders are planning to split from the leftist
elements in the party, according to Information revealed by the US represen.
tative in Hoag Kong. They anticipate repudiating the League manifesto which
adhered to the Communist party line and desire US assistance toward relaxa-
25X1C8b tion of the Leagues ban by the National Government.
According to Chinese press reports, preparations are being made in
Shanghai for a nationwide student protest campaign against US policy in
Japan, to start within a few weeks. The student group has been consistently
anti-Japanese since the war. The US Consul General believes this might
mark the first step in an attempt to stage nationwide anti-Government
demonstrations as well as exacerbate general anti-US feeling.
The British Government is demanding L 300,000 for "shame and damage"
resulting from the Shameen incident of 16 Januar$, while the Chinese
Government is pressing for the settlement of the Kowloon "squatters incident."
The Dairen Chinese press of 29 April announced the opening of a daily
busiine service from Dairen to Communist-held Pulantien, T kushan and Antung,
points outside the Port Arthur naval base area. This is the first officially
recognized overland route to such points since 1946. It opens travel (ex-
cluding foreigners) to North Korea and Manchuria and indicates possibility
of expansion in overland trade between Soviet-controlled Dairen and North
Korea, also with Chinese Communists in Manchuria.
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The State Department has accorded Ranking Embassy freedom of action
with regard to diverting the grerett Line SS Coastal Champion. due Shanghai
22 May, to Dairen in order to'take US Consular personnel there. US Embassy
has informed the Kremlin that the vessel would be to diverted unless visas
arrived for transit of consular personnel via Vladivostok. So far there is
no Soviet reaction to the notification.
Twenty truck caravans opened the first Inning-.!thua trade in two years.
janati Chi Kai-shek held a special meeting, with Finance Minister
0. K. Yini on 10 May. to draft measures for curbing soaring commodity prices.
Chinese Government financial experts are reported to have admitted there is
little or no bops of turning back prices under present conditions, and at
best could merely slow down the rate of increase.
Cur . Al? commodity prices advanced sharply during the past
week, while the US broke the CT $ million mark on the blackmarket. The
official 'open" US $ sxchan a rate has remained unchanged for over a month,
and is now only a third of the Shanghai bl.aarket rate. April food prices
in Mukden doubled those of March. The outstanding CR $ note issue is
reported to be 98.9 trillion as of 1 May. a 41` increase over the previous
month.
The Shanghai Market; . US $ Exgho a (Selling pate) Wholesale Price of Rice
Qcficial "op n" Al A _ per 172 lb 21
This week (7 May 48) Ci $328.000 CO $1,150.000 CR $4,700,000
Week ago (30 Apr 48) 328,000 810.000 3.850,000
Month ago (7 Apr 48) 328.000 600.000 3,850,000
Year ago (7 May 47) 12,000 27,000 300.000
Foreiia Trade Eonng long.- There was a marked increase during the first
quarter of 1948 in the value of exports from Hong Kong to the USSR, while
imports from Russia were small. Exports consisted chiefly of metal ores
valued at HK $2.7 million (US $ 690,000.) Although source does not specify
kinds of ores, it is possible that much of these-ores represent tungsten, tin
and antimony smuggled out of China.
Shi_ np~in~r. US Consul General Hankow has received a report that Wu Kuo-pin,
brother to the Shanghai Mayor, is negotiating with the British for transfer
of several UK vessels to a Chinese shipping firm to be set up by Wu, for
direct Rankow-overseas service. It is reported that UK shipping representa.-
tives approve the plan, which is now before the Ministry of Transportation.
Foreign flag exclusion on the Tangtse will probably continue.
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Fhibul. Government tackles high cost of l ivies Z. Several of the
seven poet-war govermnents In Siam have a..len as a direct result of.
their inability to c o,-:e 'with the problem of the rising cost of living.
The present Premier, F'hibul. Songgran, in an attetipt to strengthen his
position by carrying out a promise of his military coup groip, has
announced that he is inau,Uurating an a ggreuaive program des and to
decrease the cost of living. A small redaction in rice prices, a
251 reduction in Ya l freight charges, the opening of coonerative mar-
kets, and the projected opening of lour-price cha:i restaurants are acme
of the more significant features of his program.
Implementation of the program nay prove difficult; vigorous pros-
ecution will be impeded by the habitual inert_L.a of the Si&mese. The
debilitatir?Pxel ct of widespread graft will also prove to be a serious
handicap. are reported to feel that the
best policy for the present is to accept the existence of graft in a few
high places in exehart'e for efficiency. Phibul is fully capable of
utilizing drastic measures to effect: such a policy and may be expected
to resort to heavy fines and imprisonment if officials fail to carry out
his program.
FRP,''CN T'DCCH1T'A
Bollaert makin new efforts to reach political settlement. Reports
from both Par is and Saigon d ate that, following his failure, through
intermediaries, to effect contact with representatives of IIo Chi Minh and
the Viet "'inh in Ilona Yong, French high Commissioner Boll aert apparently
has been forced to utilize General Xuan, French-stxnsored 'resident of the
Provisional Government of South Vietnam (C ochinchir a), in what may be his
final effort to reach a political settlement in Indochina. Despite the
report that Bollaert was ordered by Paris to take no further action pending
instructions, he is evidently attempting to arrive at a face-saving agree-
ment with Ruan, hoping for subsequent approval frcci the French Government.
The new plan allegedly will. include .the formation of a provisional, and
rather limited, central Vietnam Government under Xuan, another Boilaert-
Bao'Dai conference resulting in the transfer of the negotiations involving
Pao Dai to Franke, and possibly the indefinite postponement of the former
Annamite emperor's return to Indochina as head of a new regime.
General Xuan is currently visiting; in north and central Vietnam in
an effort to encorrage anti-Viet I'inh elements, and perhaps even non
c ammanist supporters of IIo Chi. Irinh, to take an active part in the pro-
visional government. The response to date appears to be negative, inasmuch
as these groups seem no more willing to cooperate with the pro-French Xuan
than they have been with the heads of the French-sponsored and ineffectual
Tonkin and Annam J dministrative Committees. It is doubtful that any respon-
sible individuals will risk their positiorts and their lives to support an
unstable Xuart government.
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 Ap,prpved For Release 20/05/23 : CIA'
.: H I!1 HIP- A (continued)
The first public annou Bement of Xuenl s !tdcmarAsty came .rc d i o
Saigon on 7 ?.tay, in a broadcast announcing proposals for "independence
which would include c cn plete internal ecv'ereignty, political and geo-
graphic unity, and fall economic freed o n, but reserving for future
negotiations the delicate questions of finance, customs and diplomacy,
If a government under Xua.n emerges under these circc netarces, it is
unlikely that the French can avoid the indictment of having created a
"puppet" adm:Iniistrat .ojt or that any such r Aline can succeed unless
the French are willing to make further concesoionse
CONFIDE
SAL
Approved For Release 2000/05/23 : CIA-RDP79-0109OA000400060003-9