INTELLIGENCE HIGHLIGHTS NO. 8 week of 29 June - 6 July 1948

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-01082A000100010013-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 6
• Document Creation Date: December 16, 2016
• Document Release Date: April 13, 2005
• Sequence Number: 13
• Publication Date: July 6, 1948
• Content Type: PERRPT

DOCUMENT NO.
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CLASS. CHANGED TO: TS
NEXT REVIEW^v DATE:
DATE.
OFFIC ; OP RHPORTS AND 13SMUTM, CIA
FAR EA3 T/ACIFI C BRACH
INTELLiOEP1CE HIGMGHTS NO. 8
MEEK OF 29 JUNE - 5 JULY 1948
SECTION I. SlA$f' ARY OF FARUST 'lY2FF3-1DO AND DEVEI OPMB'M
The UM continues its efforts to fobtor Japan.-Sakhalin trade (pagp 2)a
19+hilo the Chinese Coacmuniet Party appears to be in no imminent danger
of a "Yugoalawtype" castigation by Ifosoow, Chinese Ca nist leaders must 25X6
realise that such action in possible at any time (pap 2).
1. road not,, suitable for high spoed traffic and military use, is being
built in North Korea by Soviot engineers (page S).
China's recent financial crisis has subsided but has served to re.?empha-
aize the very precarious state of the Nationalist eoonomio structure (page 4).
Military. activity remains on s minor scale (page 4). The chief event of the
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mas the signing of the Bilateral Agreement concerning US Aid to Chum
(page 4) ,
Increasing algae Indonesian unity may force GOC consideration of US?
Australian proposals as only basis for peaceful solution (page 6).
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SECTION II. DEHELOP/lfts III SPECIFIED AREAS
GEHAL
USSR oontinuen efforts to build Japan-Sakhalin trade
The US Political Adviser in Tokyo has advised the Department of State "A"
that the difficulties which Japan in incurring' in its attempts to secure
iron care from other Far Eastern countries may result in its increased
dependence upon the USSR. He stains that the USSR trade representative has
indicated that it may be possible for Japan to secure iron ore front Sakhalin
deposits whereas varying types of obstacles are being offered by Japan+s
normal sources, i.o. the Philippinres, Hainan and the Yangtze Valley (China),
Lalaya, India, and Indochin. The Political Adviser stresses that the "normal"
sources fail to realize that iron ore sales to Japan would result in mutually
beneficial trade leading to rehabilitation not only of Japan but of themselves
and the Far East in general (Supplies of iron ore from other areas, e.g.
Canada, are obtainable, but at higher costs).
The favorable consideration by the USSR trade representative to the
possibility of Japan securing vitally needed iron ore from Sakhalin is another
Indication of Soviet efforts to build up trade between Japan and Sakhalin.
As yet, hover, it is Impossible to conclude whether primarily the USSR in
seeking to build up such a trade because: (1) Japan can furnish items (e.g.
railroad rolling stook) apparently of essential concern to Sakhalin in the
building up of its economy or (2) the USSR is seeking to make Japan eoonomi..
oally depondnnt upon it as a, means of subsequent political penetration.
I lioations for Chinese Co to of Cominform Resolution on.! oslavia
Chinese Comm nist leaders must be impressed by the recent Cominform "B"
resolution on Yugoslavia because of the parallels in the agrarian background
of the Communist parties in both countries and the applicability of certain
criticisms in the resolution to the Chinese Party's polieiec. The Chinese
Communist leader Mao Tse-tung has stated that the Chinese Communist Party
represents the "Joint rule of several revolutionary classes" as opposed to
the Soviet concept of rule by the proletariat. Thus the resolution's condom..
nation of the Yugoslav Popular Front, with its inclusion of varied class
elements and political groups would also condoms the Chinese emphasis on the
unity of the Communist Party with. the proletariat, peasantry, intelligentsia
and petite bourgeoisie in a "mighty, independent, political pover".
The Chinese Co>eist Party appears to be in no ant danger of
similar castigation by Moscow, as such is not necessary nor desirable in the
Kremlinoty present plans, but Chinese Communist leaders must realize that the
Yugoslav-type action to and them is possible at any time. The resolution
also offers an object lesson to those Chinese elements desirous of collaborat-
ing with the Co ists in a possible now government that any arrangement with
Communists seems to 'Lead inevitably to Co ist domination and control.
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KOIM:A
Soviet machinery and e
road construction and . rovement-In North orea, sou o n yang and
-W- PER
near the par e , on a scale ant urger an usually carried out
each spring and fall. This out-of-season activity is significant since
the pattern of construction for the routes, which in most cases now come
to an a7rupt end at the parallel, is such that the roads will be suitable
for high speed traffic and rapid movement of military personnel and
equipment to the 38th parallel.
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MM_ was signed at Nanking
3 duly covering *275,000,000 for economic aid to that country. the agree.
mant comprises 12 articles, a short annex detailing safegpards on aid aemixr-
istration and as change of Notes between the two governments granting
host Favored Nation treatment on a reciprocal basis for trade to territories
under occupation by the US, including Japan and South Korea. ' Apparently
the device of an Exchange of Notes - an executive act ? we evoked for the
Most ?avored Nation provision in deference to the Chinese Government's fears
.that Its inclusion in the regular agreement would subject it to adverse
criticism in the Legislative Yuan and to popular resentment. The principal
provisions of the agreement are that China will initiate and maintain more
stable currency conditions; make practical efforts to improve commercial
relations with other countries; administer import/export controls in uniform
equitable manner; promote agricultural and industrial development on sound
basis; facilitate transfer to the US for stockpiling or other purposes.
materials originating in China which are required by US; will agree to
cooperative study projects to be financed by US; and to keep the people of
China fully informed of progress in implementing undertakings under the
agreement.
e d1s9M1sfMtJ= Sine-Soviet relatIpAg is indicated in a
resolution, introduced by over 100 members of the Legislative Yuan, requiring
the Government to list violations of the 1945 Sino.?Soviet Treaty. The Yeah
members charged the Foreign Affairs Ministry with "remaining as quiet as a
cicada in cold weather" on this matter.
scattered vel
creek. In Central China Communist forces, following the successful comple-
tion of a well-planned raid an Kaifeng have been evading an armed brush
with pursuing, superior Nationalist units, who claimed to have encircled
the Communists south of Kaifeng. The Communists are now massing south of
Chenghsien and according to press dispatches have already begun to probe
the defenses of that city. Meanwhile Communist attacks on Tzuyang,
Shantung continued and small scale fighting was noted along the eastern
sector of the Lunghai Railroad near Lienyun. North China Communists
continued to harrass the Peiping-Mukden Rail line, with the latest attacks
directed at.the hhenhaiku n.Chinhtien sector, Late reports indicate that
peripheral attacks have been launched against Chinhsien.
Ci+i naf s I'ina_n le.]- Cri ll! s. Tension has partially relaxed in Shanghai,
the financial nerve center. of the nation, from the near panic conditions
of the previous week when Chinese National currency depreciated 100% in a
matter of a few days precipitating the greatest price rise yet seen.
Probably anticipating further financial decline, the local garrison com
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sander has repeated his fear that continued economic disintegration would
lead to. disturbance of peace and order for which he is resvonsible sad has
followed up his public warning of 26 June with a convening of haade of
local security forces to draft plans to wipe out blaakoaxket operations.
Civilian leaders were conspicuously absent from the meeting. The resulting
plan provides no new economic weapons, but appears to be merely a rem
statewent of currently inefftctive orders. This action on the part of the
Shanghai Garrison Commander substantiates a report that Oblong Kai.sbebc
is directing the campaign over local civilian heads in an effort to save
Shanghai, China+s 'show window', even to the extent of considering martial
law. The growing severity of the financial decline emphasises anew the
extremely precarious position of the Nationalist economic structure, but
there is no evidence as yet of a complete collapse.
ftrUMor Prines. The Shanghai general cost of living index for
workers increased 110.7% over May, reaching 710,000 (1936 = 1). This is
the greatest monthly increase yet recorded. The Increase for May over
April was only 28.6$. The percentage increase for June, however, was still
less than half that of the price of rice (basic commodity) which increased
252$ during the month. The Blackmsrtet US dollar exchange rate increased
27 In the same period,
The ShannxhM, Markets
us i am baa~e (S21 int sate) Wholesale Price of Mice
= 1214 'a*00s Bla kaarkes sr 172 lb nicn3
This week
(30 Jun 48)
CN $480.000
CN $3,975,000
CN $18,000,000
Week ago
(25 Jun 48)
480,000
3,600,000
15,500,000
Month ago
( 2 June48)
4800000
1,230,000
7,200,000
Year ago
( 2 Jun 47)
12.000
45,000
480,000
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r r r Ajaw?w~ _ _ .,.e
Ines easing Indonesian unity force GM consideration of US-Australian
ropvsas.'~..r.N-x p-_-- Butch attempts to pree3 p .tate a serious cleavage between Repub-
lican and non-Republican Indonesians appear not to have been successful as
the majority of the delegates to the Dutch-convened Federal Conference at
Bandoeng c Imposed of representatives of non-Republican' states are reported
to have reacted favorably to the recent US-Australian plan for a future fed-
eral government in Indonesia. It is probable that the delegates! favorable
reception tothe joint US-Australian paper has resulted Prom the fact that
representatives of the more important states, including East Indonesia and
Pasoenda (In. best Java), have been working on a plan of their ovm rniioh is
not Incotipatibla with the (US-Auatrali?an working -paper and which calls for
cooperation with the Republic in the formation of an interim gcr ornment.
If this movement for mutual cooperation among various Indonesian factions
continues to gain support, the Dutch position In Indonesia will grow pro-
portionately weaker since the Dutch have consistently publicized the diffi-
culties in Indonesia as being a ccnfl.iat between nor-Republican and Repub-
lican elements. As a result it is quite likely that the UN' Good Offices
Committee, whose negotiations in Indonesia are now practically suspended
pending the arrival of new US and Dutch delegations, will be forced by
these signs of increasing Indonesian unity to consider seriously the
US-Australian proposals as the only basis for a peaceful solution.
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