THE DOMESTIC IMPACT OF COMMUNIST CHINA'S ECONOMIC CRISIS

Created: 7/27/1962

OCR scan of the original document, errors are possible

CENTRAL INTELLIGENCE AGENCY OFFICE OF CURRENT INTELLIGENCE2

oci Wo.INTELLIGENCE MEMORANDUM

SUBJECT: The Domestic Impact ofCrisis

1. China's economic slump has engulfed Pelping In domestic problems so grave that It is legitimate to ask whether the regime--or at least ths currentsurvive. Not only ls the population becoming increasingly restive as it experiences the decline in living standards, but there is evidence of increased doubts and uncertainty among officials who mustconstantly shifting regime policy. As the various palliatives which Pelping has applied have provedthe range of alternative policies open to the Chinese leaders has narrowed. At least in some regions it has now become necessary to make an open show of force. There are three main aspects of the problem: the rise in public unrest; official reaction andand the current situation.

2. Popular reaction. Tho following stages of public reaction to tho decline Id living standards have been noted:

dissatisfaction. This beganscant harvest9 but the peoplefeelings to themselves for fear of This attitude continued through most

grumbling and complaints. Bythere were many reports of peasantscadres, of slowdown strikes in the fieldswidespread apathy toward regime directives.

APPPCVTE FCt>ATE: 6

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Instances uf putty corruption, thlevory, and anti-regime sloganeering began to appear. The change to more vocal expressions of discontent wasin part by Peiping's decision to curtail use of oppressive measures, directing tbe cadres to use persuasion instead. Regimentation of the peasantry and urban dwellers was no longer enforced to tbe same degree as before. Foreign observers reported that they saw small Informal groups working In the fields, rather than the huge martial-llko brigadesouple of years before. These concessions were welcomed by the benefited groups, but it is doubtful if they really served peiping's purpose. First, because the economic situation continuod to deteriorate the "Smallthoy werenot satisfy the population and probably whetted its appetite for more. Secondly, Peiping's concessions sorlously hurt party esprit and Cadres had to reverse policies constantly and became discouraged and confused. There were some resignations from the party.

c. Limited open defiance and search forsolutions. By the spring2 public security haderious problem. Many including low level party officials, were placing thulr personal well-being and that of their families above everything else. Corruption, black marketeering, and thievery had become quite common. There were even roports that some persons bullevod "the mandato of heaven" had been withdrawn fromquote one Kwangtung peasant, "Haaven will notuthless and cruel government which kills people by starvation to last too long." in May there was the influx of refugees to Hongpontaneous mass movement taking advantage of indecision and confusion amongon the local level. There is no question that peiping was shocked by the refugeo movement. It may haveurning point in the regime's attitude toward the populace, particularly toward the population in Kwangtung.

3. Official reaction and policies. There ls good evidence that Feiping was vitally concerned over its loss of public support by the fallnd this concern has continued.

armyhigh levelconcerning the state of army morale inand Both men and officersaffected by tales of the hardshipsdisaster areas by their families. wo-pronged policy to make sure itlose the army's loyalty: the men wero toto extra propaganda doses tothat things were really better than inold" KMT days, and also they were toleniently in all possible respects andfor their doubts. Officers, andpolitical cadres, on tbe other band wereinvestigated carefully, and only the mostretained in positions of responsibility. to the documents substantialmorale were achieved.

peiping regime inaugurated ornumber of policieshich wereconciliate wavering elements of theto extend production incentives. Theconcept ofodicum ofof nonpolitlcal subjects wasthe regime for all practical purposesinsistence that "politics must take command"

in technical, scientific and professional spheres.

4. The current situation, peiping's apparent belief that Chiang Kai-shek, backed by the US, might really attack the mainland this summerew urgency to its public security problem. The recent troop movements into Southeast China may have actually been intended toual purpose. Althoughaimed at strengthening coastal defenses, an

ac

important by-product was to demonstrate military mightestive populace. Certainly the regime couldrackdown oa disgruntled elements under the cloak of war hysteria.

a. Public discipline may be weakest in South China; open public defiance appears more common in Kwangtung Province than elsewhere. Kwangtung has alwaysroublesome area for the central Chinese authorities and is proving so again for the Communists. Communist provincial secretaries were sacked there8 fornd there have been someof current differences between the central and Kwangtung authorities. ecent defectort

es that anthe loyalty of

in The investigators reported thatf themployees either wereanted to emigrate to Hong Kong, or werewith tho Chinese Communist Party. There have been several clashes between mobs and the Communist authorities in Canton and its environs. Foriot occurredune at the Canton railway station which had to be put down by troops.

b. Around the first of June Canton was placed under something akin to martial law. Army patrols nowcommon sight in the city,are being issued jointly by the mayor and

garrison commander and house-to-house searches have been conducted for "unrealiable" elements. These searches have reportedly resulted in the arrest of several thousand persons. uly the party boss for Central South China, Tao Chu,athering of party officials that strong measures must be taken against counterrevolutionaries because the "criminal activities" of these internal enemies had in fact become "outstanding." They were, in short, endangering internal security. Tao Chu also instructed party officials to develop the

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masses' "anti-enemy struggleintimation that Peiping has doubts about issupport.

occasional reports irom I

suggest that conditions may

not be much oetrer there. Articles areregularly in the Peiping press whichthe concern of the central authorities over the pull of centrifugal forces in China. Serious warnings have been issued against those who may dream of establishing "independent kingdoms" and constant criticism is leveled against those who put local interests above the nation's. Anin theune issue of Red Flag, the party theoretical journal, inveighs against cadres who appoint friends and lackeys rather than men of ability to positions of responsibility,

5. Public unrest and open expressions ofwith the regime are likely to increase ifsituation does not improve, and there arethat it will in the hear future. However,authorities have massive machinery at theirto quell riots or resistance. hineseofficer, inis belief

that, despite lowered morale, the troops would support the government in suppressing trouble. The rapidity with which the army closed the HOng Kong border in late May, once the decision was taken to do so, is testimony to the continuing effectiveness of the public security apparatus. The situation may, however, be movingew stage. The relatively passive nature of popular disgruntlement in the past permitted the regime toid-glove approach. Unrest has become more active and less possible to ignore,. the Kwangtung refugees and Canton riots) and in such instances the authorities have shed their gloves. As shows of force become more general, the major question will be just how the Chineseill-clothed, ill-housed and increasingly disposed to blame the Communistsreact.

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