Following the coup by the Myanmar army on February 1, 2021, fighting exploded immediately in the China-Myanmar border area along a strategic trade route between the two countries. But the outbreak wasn’t about the coup — instead it was a battle between two Chinese-speaking militias over control of the Kokang Special Administrative Zone, a lucrative center for illegal business. The story behind this episode provides a small window on the rise of regional criminal networks under the army’s patronage and how they are enjoying a new lease on life under the junta.
The roots of this conflict go back to August 2009, when the Myanmar army, known as the Tatmadaw, launched a devasting attack on a remote enclave on the China border known as Kokang.
Kokang occupies 10,000 square kilometers — an area about the size of Lebanon — in Northern Shan State. It was once ruled by the Myanmar National Democratic Alliance Army (MNDAA), an armed group established in 1989 by ethnic Chinese warlord Peng Jiasheng. Before the MNDAA’s founding, Peng had been a key leader of the Burmese Communist Party, which was supported in its uprising against the Burmese government by the Chinese People’s Liberation Army.
When the communist rebellion folded in 1989, Peng’s newly formed MNDAA immediately took over Kokang and shortly thereafter concluded a cease-fire with the Myanmar army to establish Myanmar’s “First Special Region.” Even so, sporadic fighting between the Kokang and the Tatmadaw continued for the next two decades. In 2009, the group refused a demand from military that it become a Border Guard Force under its direction, and the army overran Kokang. The MNDAA was deposed and sent into exile.
The Tatmadaw cut a deal with the MNDAA’s former deputy commander, Bai Suocheng, to set up a Kokang Border Guard Force (BGF) under Tatmadaw control, and the territory was renamed the Kokang Special Administrative Zone (Kokang SAZ). Peng and his remaining troops continued their struggle underground, and his son, Peng Deren, soon emerged as the new leader of a re-constituted MNDAA.
Ironically, while the Tatmadaw’s original campaign in Kokang came under the pretext of a crackdown on crime, including narcotics trafficking, Bai Suocheng, his family and their associates have subsequently built a massive business empire tied to illicit activity in the Kokang SAZ. As USIP reported early this year, the Bai, Liu and Wei families, which lead the BGF, also dominate a multi-billion-dollar casino business in Kokang, which now extends into Karen State and internationally into Cambodia’s Sihanoukville, a known hub of Chinese transnational crime. Key Kokang elites involved include:
- Bai Suocheng’s children, among them Bai Yinglan, deputy director of the Kokang Gaming Commission and chairperson of the Xinbaili Company, which owns a hotel and casino, including online gambling operations; Bai Yingneng, chair of Kokang branch of the military-aligned political party and committee member of the SAZ; and Bai Yingxiang, who heads the Kokang Women’s Association and Kokang Charity Foundation and the Baisheng Group of Companies, the largest player in the Kokang casino business;
- Wei Chaoren, former deputy chair of the Kokang SAZ and his son, Wei San, who is chair of the Kokang BGF and leads the Hengli Group of Companies, which owns a commercial/industrial zone project occupying 165,000 square meters of territory and a luxury hotel and casino.
The Kokang hotels and casinos host a full array of criminal activity. USIP analysis of Chinese court records shows that since 2010, Chinese judges have heard more than 1,300 cases involving cross-border crimes emanating from the Kokang SAZ. About 800 involved narcotics, 181 dealt with gambling, over 300 turned on smuggling allegations and 38 involved kidnapping. These include multiple cases relating to the Bai and Wei family companies.
Since taking over the MNDAA in 2009, Peng Deren’s primary objective has been to reclaim leadership over the Kokang territory, a goal supported by members of the powerful Northern Alliance Army consisting of the Kachin Independence Army, the Ta’ang National Liberation Army, the Arakan Army and the MNDAA. In 2016 the MNDAA nearly achieved its aim, but was defeated by the Kokang BGF with support from the Tatmadaw.
The Tatmadaw’s 2021 coup was seen by the MNDAA as a new opportunity to retake Kokang by staging a February 6 assassination attempt against Bai Suocheng’s son, Bai Yingneng. The attack heightened tensions across Northern Shan State — aggravated further by unrelenting Tatmadaw campaigns against the Northern Alliance. Three organizations in the alliance have condemned the coup and pledged to continue armed resistance against a new military dictatorship.
A key element of the Alliance’s resistance campaign is to take control of strategic posts along the China-Myanmar trade corridor that runs through Kachin and Shan States. The Tatmadaw monopolizes trade on this route and occupies strategic high ground to gather intelligence and attack the ethnic armed organizations (EAOs). Seizing the positions helps restore the northern alliance groups’ control of the border trade, which had weakened since the Tatmadaw takeover of Kokang in 2009.
With the Tatmadaw facing widespread violent resistance from the public while EAOs simultaneously seek to expand their domains, the Kokang BGF has become critical to the junta’s control of trade and transport corridors in northern Myanmar. Chinshwehaw and Kunlong — two regions controlled by the Tatmadaw — are adjacent to the Kokang SAZ and home to one of the key Cross-Border Economic Cooperation Zones negotiated with Beijing under the China-Myanmar Economic Corridor. These passageways are particularly vital to the multi-billion-dollar trade route between the central Myanmar city of Mandalay and the Yunnan capital Kunming in China.
Kokang BGF has supported the coup regime in four principal ways: legitimizing the Tatmadaw by participating in events such as armed forces day; donating to the military’s political party and its allied institutions; supporting the regime’s narratives about the Tatmadaw in China through the BGF’s Chinese language social media channels and representing the regime in business promotion events in Yunnan; and throwing troops from its 6,000-man military into the Tatmadaw’s war against the MNDAA.
China Moves Against Crime and COVID on the Border
Even before the coup, China had paid lip service to cracking down on cross-border crime, especially on the illegal gambling and telecommunications fraud pervasive on the border. This was due in part to the civilian government’s insistence that China police its nationals, especially the Chinese triad-related groups operating in areas beyond government control. Following the coup, transnational criminal networks boldly resumed plans to advance new operations, particularly in areas controlled by BGFs, as well as in territory under the 25,000-man United Wa State Army (UWSA).
After several high-profile cases of Myanmar-based criminals defrauding Chinese nationals — as well as committing kidnappings and murders — China’s central government unleashed a harsh crackdown on what it calls “cross-border gambling and online fraud.”
The effort intensified markedly in April 2021. But rather than pursuing kingpins or key companies owned by Chinese criminals and militia leaders, the Chinese Ministry of Public Security took aim at all Chinese nationals in northern Myanmar. In May, local police across China began identifying residents who had travelled to Myanmar and ordered them to come home before June 30 or face serious penalties that could even be imposed on their families. Local authorities in Yunnan supported the crackdown by pressuring EAOs to cooperate. In Wa State alone, the Wa army set up an online registry for Chinese nationals, and demanded they leave ahead of the deadline. More than 40,000 Chinese complied.
Beijing’s heavy-handed campaign devastated local economies along the border, particularly in the Mongla and UWSA territories of Shan State.
A Windfall for Criminals in Kokang
With the Tatmadaw suffering defeats by northern armed groups in Kachin and Shan States, support from BGFs like the Kokang SAZ became critical to the military, putting the Kokang leadership in position to scale up its own cross-border gambling operations. As ethnic Chinese themselves, the Kokang gambling operators didn’t depend on Chinese national employees to serve customers and remained largely unaffected by Beijing’s crackdown. While gambling towns in the Wa territories close to China emptied out, casinos in the Kokang SAZ visibly scaled up. Since April, a flood of new advertisements for online gambling emerged on Facebook, Tik Tok and other social media platforms.
As detailed earlier, nearly all of the casinos are operated by or housed in establishments under the direct control of Kokang SAZ senior leaders and the wealth generated through unregulated commerce has helped build a diversified business network across Myanmar.
The Fully Light Company, for example, which owns some of the largest casinos in Kokang and Myawaddy, has invested in large-scale real estate projects in Mandalay and Yangon, mining projects in Kachin and has industrial facilities across the country. The elite Bai, Liu and Wei families have also started pushing into neighboring countries including Cambodia and Laos, where they have significant casino operations. Their cross-border money transfer facilities offer them and their Tatmadaw benefactors a region-wide platform for laundering funds, co-opting elites and potentially even evading sanctions.
Implications for China’s National Security
Kokang’s criminal kingdom poses several challenges to Chinese national security interests.
First, raging COVID in Kokang could easily spread into China through illegal border crossings by casino clients and others with cross-border business. Second, what makes online gambling and other malign activity in the Kokang SAZ so profitable is, to a large extent, its reach across the border to victimize Chinese nationals. Third, the Tatmadaw’s alliance with the Kokang BGF enables it to generate revenue from and build influence in the border area, threatening the interests of the powerful northern EAOs and fueling conflict that could spill over into China.
If China fails to confront the junta directly to demand it curtail criminal activity in Kokang, its law enforcement and COVID-19 prevention campaigns and efforts to stabilize the border area will not succeed.
Finally, because the Kokang BGF is pouring resources into the military’s fight against democracy in the country, and providing a hub to extend criminal activities across Asia and beyond, it warrants close attention from the United States. The Kokang-affiliated businesses are increasingly a threat to international anti-money-laundering and law enforcement efforts and represent a key channel the Tatmadaw may use to avoid future sanctions.