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I'm assuming Nationalist China is a scorched earth country. It doesn't say this in the manual that I could see (only mentions USSR), but it explains the saboteurs appearing where they shouldn't otherwise.

Also, with the 3 rail hex per turn repair rate, are these randomly selected?

The following have scorched earth in the 1941 scenario:
USSR
China
Australia
Communist China
Mongolia
Thailand

I would assume it would be the same in the other scenarios.