On a sweltering day at the start of 2018, I was in Nansan, a town on the Chinese side of the China–Myanmar border. Adjacent to Myanmar’s autonomous Kokang region, Nansan remained peaceful despite the conflicts that in 2015 had seen an influx of 100,000 refugees from Myanmar. The local economy, bolstered by a flourishing gambling industry, seemed unfazed by the proximity of war.

While in town, I met a snakehead (smuggler) nicknamed Big Bear (大熊). For 200 RMB, he took me to the other side of the border on his motorcycle, first on bustling highways and then on rugged, mountainous trails. Our route, symbolically divided by a lone sign marking the international boundary, transitioned from scenes of war-torn desolation to vibrant commercial life. In Laukkai, the capital and economic centre of Kokang, lively restaurants and stores belied the recent history of conflict, starkly contrasting with the bullet-riddled landscapes through which we had just passed.

Big Bear and his wife were Laukkai locals. As such, they benefited from the 1997 China–Myanmar Border Management and Cooperation Agreement that allowed them easy access across the border without needing a passport or a visa. Together, they managed to give their customers a seamless experience: Big Bear handled their journeys, while his wife ensured entertainment and comfort in the Laukkai casinos once they reached their destination. The interior of these casinos is a hive of activity, with gaming tables occupying the sprawling ground floor, which is the size of a football pitch. This bustling enclave, nestled a mere stone’s throw from Nansan, felt like a world apart from it. As Big Bear’s wife put it: ‘This place comes alive at night, offering more excitement than Nansan ever could.’

Here, amid the casino’s din, Kokang’s economic paradox came alive: a region still thriving on informal economies despite its official autonomous status dating back to a 1989 ceasefire agreement between the Myanmar military government and local armed groups. Kokang’s experience underscores a broader pattern across Myanmar’s northern Shan State, where ethnic armed organisations leverage administrative autonomy negotiated with the government to sustain their economies. However, these arrangements have not guaranteed peace, perpetuating instead a complex web of conflicts and alliances.

Myanmar has 135 distinct ethnic groups, at least 20 of which have established armed entities, the so-called ethnic armed organisations (EAOs). These groups, particularly those along the China–Myanmar border, often assume dual governance and economic development roles and rely heavily on cross-border trade. The relationship between the border-based EAOs and China is intricate and characterised by cooperation and conflict. The regions where these groups operate are frequently unstable, as highlighted by the recent ‘1027 Operation’—a coordinated offensive launched in October 2023 by a coalition of local EAOs aimed at reclaiming territory from the Myanmar military junta and its aligned militias, including the Kokang Border Guard Force (BGF). 

The survival and resilience of EAOs are closely tied to the illicit economy. But how has this economy evolved in response to the survival strategies of these groups and how have they managed to exploit it? To answer these questions, in this essay, I draw from extensive fieldwork I conducted from 2018 to 2022 across multiple sites in the China–Myanmar and Thailand–Myanmar borderlands, involving diverse participants, including members of local communities, border patrol officers, ex-combatants of the EAOs, and brokers. I focus on EAOs within northern Shan State—Myanmar’s largest and most ethnically diverse region. Amid ongoing internecine conflicts, several territories remain under the control or influence of various nonstate actors, particularly three border enclaves adjacent to China. Officially, these areas are designated by the Myanmar Government as Shan State Special Regions 1, 2, and 4. At the centre of my analysis are the Myanmar National Democratic Alliance Army (MNDAA), which has engaged in three major conflicts with the Myanmar military, in 2009, 2015, and 2023, and the United Wa State Army (UWSA), which has become the largest EAO in Myanmar. Both groups are famous for their historical Cold War alliances with the Communist Party of Burma (CPB) and their significant involvement in cross-border trade with China’s Yunnan Province.

Drug Trade, 1950s–1990s

Historically shaped by migration, regional geopolitics, and challenging terrain, the drug trade routes in the Golden Triangle—an area that spans Myanmar, Thailand, and Laos—saw the transformation of opium from a minor cash crop to a major economic driver during the nineteenth century in a transformation that was spurred by the British East India Company’s market expansions (Kim 2020). By the early twentieth century, Thailand had emerged as a key player, reaping substantial revenues from the trade (Lintner 2000), and, by mid-century, following the political and social upheavals triggered by World War II, the Golden Triangle had become a major drug-producing area. EAOs capitalised on the trade to finance their resistance against state and foreign control—a situation that was further complicated by the involvement of external powers such as the United States (McCoy et al. 1973: 14).

The drug trade in the Golden Triangle has served as both a crucial revenue source and a strategic asset for EAOs in the China–Myanmar borderlands, significantly boosting their ability to sustain operations and shape regional power dynamics. Originally, these groups supported their activities through opium cultivation, which eventually became their primary source of income. The Ka Kwe Ye (KKY) program, an initiative of the Myanmar military in the 1960s, took stock of this and recruited ethnic armies to combat communist insurgents in Shan State by allowing them to manage cross-border trade—a measure that targeted the insurgents’ main revenue stream, the drug trade. As the participants in the KKY program were permitted to trade drugs and procure advanced weaponry from black markets in Thailand and Laos (Lintner 1994: 232), the initiative inadvertently also financed rival armed groups, complicating the region’s security landscape (Priamarizki 2020).

As Myanmar’s drug trade routes grew increasingly profitable, in the 1990s, a significant conflict arose in Shan State between the UWSA and the Mong Tai Army (MTA), two EAOs that vied for control of these lucrative paths. Based in eastern Myanmar, the MTA expanded across Shan State, while the UWSA fought to oppose their ambitions. Concerned about the MTA’s goal of establishing the Republic of Shan State and its implications for regional control, the Myanmar Government allied with the UWSA in a partnership that ultimately led to the latter’s victory and acquisition of territories previously controlled by the MTA that are now part of the Southern Wa Region (Zhong and Li 2004: 197–201; Shi 2012: 137–39).

The KKY program and the 1990s conflicts between EAOs in Shan State illustrate how the drug trade has provided not only capital but also political leverage to negotiate power dynamics among EAOs and the Myanmar military government. These scenarios reveal the strategic use of drug trafficking control, particularly during the Cold War’s peak, as a crucial tool for political manoeuvring. Such dynamics enabled groups like the UWSA to forge and sustain power alliances, shaping the factional landscape of drug warlords in the China–Myanmar borderland during the 1990s. This highlights the complex interplay between economics and politics in shaping the regional dynamics of Shan State.

Gambling, 2000–2020

Apart from engaging in the drug trade to accumulate capital, EAOs also view withdrawal from it—often as a public move—as a strategy to gain political capital, rectify their tarnished image, and establish legitimacy. The post-1989 ceasefire agreements between former CPB militias and the Myanmar military, which granted autonomy in exchange for peace, facilitated this transition (Myint Myint Kyu 2018). Regions like Kokang capitalised on these new conditions to pivot from drug cultivation to gambling, marking a shift towards a new revenue-making model.

The early phase of Kokang’s casino industry saw an influx of investment from Chinese investors (Nanda 2020), representing a deliberate but partial shift away from a reliance on narcotics. This transition, aimed at economic diversification, sought to develop more sustainable revenue streams. Recognising the need to address their international reputation, EAOs began to publicise their anti-drug campaigns (Kramer 2007). These efforts were intended not only to rectify their tarnished image but also to bolster their legitimacy. While the production and trade of narcotics may have continued to some extent, the establishment of entertainment complexes and recruitment of a diverse workforce marked Kokang’s progression towards becoming an economic hub centred on the gambling industry, thus reinforcing its emerging role in regional economic development.

My fieldwork on the China–Myanmar border in 2018 revealed that the allure of the gambling industry in Kokang significantly contributes to the prevalence of illegal cross-border movements, just as the drug trade did in the past. Many visitors are drawn to Kokang from Nansan Town through hidden paths well known to local motorcyclists who charge a fee for transport, like Big Bear. While bypassing official checkpoints, these illicit crossings often involve encounters with Myanmar military personnel at unofficial checkpoints, where ‘fees’ are levied for passage. This not only suggests a form of tacit approval but also indicates that local authorities may be deriving benefits from the smuggling activities arising from the gambling industry’s draw.

I also found that the gambling industry not only attracts people across the porous border but also significantly facilitates the smuggling of goods, including protected wildlife. This highlights the dual role of the gambling hubs: while they boost local economies and provide employment, they also serve as nodes for various illicit trades. These activities underscore the governance challenges in the region. The casinos act as centres for both economic engagement and criminal activities, such as drug trafficking and money-laundering (Su 2022). This complex interplay does not so much enhance governance as it provides EAOs with opportunities to hedge against the uncertainties of the drug trade. By regulating these hubs, EAOs not only accrue economic benefits but also manage a precarious balance between legality and illicitness, marking a strategic shift from their previous reliance on the drug trade.

Online Scams, 2020–Present

The Covid-19 pandemic and the construction of a 2,000-kilometre wall along the China–Myanmar border (Strangio 2020) significantly disrupted traditional illicit economies that were sustaining EAOs. In response, these groups adapted by venturing further into the digital realm, specifically the online scam industry, which is less reliant on physical economies. While online scam operators were already becoming established in the region, these disruptions catalysed a rapid growth, and this industry has evolved into what Franceschini et al. (2023) have termed ‘compound capitalism’: a new form of predatory capitalism characterised by labour segregation, forceful data extraction, and exploitation of workers’ desperation. Just like elsewhere in Southeast Asia, the compounds that host scam operations vary in size, but they are often equipped with offices, dormitories, shops, entertainment facilities, and other amenities, usually integrated with or adjacent to licensed casinos. While some scam workers join willingly, many others are trafficked and forced to operate in conditions akin to modern slavery. 

In 2021, my field research in the China–Myanmar borderland revealed a marked increase in securitisation at the state-to-state level and within the border counties. This intensified security has significantly restricted the movement of people both within Yunnan Province and across its border with Myanmar. Today, after a three-year blockade that has reduced population movement along the border (Hu 2023), the digital illicit economy continues to thrive, independently of physical border openness, taking advantage of the interconnectedness of multiple states’ borders. For instance, avoiding tight security at the China–Myanmar border, online scam industry operators often enter through the less fortified Thailand–Myanmar border, which highlights the adaptability and resilience of the digital illegal economy in finding alternative recruitment channels (on how these operations recruit their staff, see Franceschini et al. Forthcoming).

The digital illicit economy has not only facilitated new capital for EAOs but also replicated the strategic role of the 1990s drug trade. On 27 October 2023, the MNDAA, in collaboration with two other EAOs, launched a significant offensive against the Myanmar Government–backed Kokang BGF, with one of the operation’s stated goals being to dismantle online scam networks. This campaign captured key towns, including Chinshwehaw, using allegations of online scam operations to justify military action and alter the geopolitical landscape. This manoeuvre, coinciding with China’s crackdown on online scams, showcased a strategic alignment that leveraged criminality for military and territorial gains. This example highlights how EAOs use the governance of illicit economies as both a conflict pretext and a diplomatic tool, strategically engaging or withdrawing from such economies to influence external actors and secure recognition or cooperation.

Symbiotic Relationships of the (Il)licit Economies

It is essential to understand that the various forms of illicit economy—namely, the drug trade, gambling, and online scams—are not isolated phenomena but deeply interconnected within the border economy. Historically, when these activities are analysed sequentially, they might obscure their inherent symbiotic relationships, in which these economies coexist and are mutually reinforcing. This integration suggests that while one illicit economy may appear to diminish, such as the drug trade during crackdowns, others, like gambling or online scams, may rise and fill the economic void—a phenomenon I call ‘sequential shadows’.

In practical terms, the intertwining of these illicit economies is starkly evident. Despite significant public efforts by EAOs in northern Myanmar to eradicate drug cultivation through substitution programs in the late 1990s, the type of drug and its trade have transformed and even increased rather than disappeared. The emergence of complex chemically synthesised drugs and the shift towards more covert sales methods exemplify this persistence. A notable illustration of this shift is Myanmar’s record seizure of synthetic drugs, including the region’s first evidence of fentanyl production (Global SMART Programme 2020). 

Previously overt border trade has now receded into the shadows of burgeoning casino hubs, where transactions continue under a veil of secrecy. Additionally, the advent of the illegal electronic economy has digitised drug sales channels and transformed traditional drug trade routes. Encrypted platforms like Telegram—popular amid Myanmar’s civil conflict and stringent government control post 2021—facilitate not just drug transactions but also cybercrimes like nonconsensual pornography and sextortion, complicating the fight against these illicit activities (Phyu Sin Shin Thant 2024). These digital avenues facilitate a more clandestine exchange of goods and services, making the illicit economies increasingly symbiotic and difficult to dismantle.

The ongoing evolution and adaptation of illicit economies demonstrate their resilience and ability to exploit new opportunities for growth, often in response to regulatory pressures. This dynamic underscores the complex challenges faced by policymakers and law enforcement agencies, who must navigate a constantly shifting landscape where traditional forms of crime are supplanted by more sophisticated, less detectable methods. Understanding the symbiotic relationships among these economies is crucial for developing more effective strategies that address the root causes and interconnected nature of these illicit activities.

Beyond the internal symbiosis among activities in the illicit economy, it is crucial to recognise the symbiotic relationships between the illicit and licit economies. As described by Hudson (2014), the illicit economy is not merely a peripheral element but a significant component of capitalist economies, with a systematic symbiosis that manifests serendipitously through their intertwining in time and space. This relationship influences the flow and development of both sectors. Indeed, the licit economy’s evolution often redefines its illicit counterpart’s boundaries (Murphy 2011). Historical shifts in the classification of drug use—from medicinal to illicit—are a testament to this dynamic. EAOs—aware of this interplay—exhibit their adaptability. They not only navigate various phases of illicit economic activities but also strategically modify their narratives to align with changing definitions and opportunities, such as transitioning from promoting drug trafficking to leading drug eradication efforts. This deep understanding allows them to leverage relationships to their advantage.

The recent military actions by the MNDAA and its allies in the Brotherhood Alliance targeting networks involved in online scams are the latest manifestation of this dynamic. The Alliance emphasised the eradication of the fraud industry as a key focus of ‘Operation 1027’ and, while it did lead to significant displacement of the industry, the operation predominantly sought to regain territory the MNDAA had lost previously to a breakaway faction. This demonstrates the dynamic ways in which EAOs use the illicit economy for economic gain, political strategy, and territorial control. Importantly, these actions illustrate how EAOs strategically time their engagement, expansion, or withdrawal from the illicit economy to leverage external actors. These moves underscore the ongoing importance of nonstate actors in geopolitical conflicts and their ability to adapt to and prosper in evolving conditions by tapping into both traditional and digital illicit economies.

This essay draws from the author’s ‘Playing with Fire: How Engagement with Illicit Economies Shapes the Survival and Resilience of Ethnic Armed Organisations in the China–Myanmar Borderlands’, published in 2024 in China Perspectives.