China’s efforts to curb the criminal enterprises and the trafficking of Chinese nationals to staff them included pressure on the military to crack down on its border guard forces and the fraud centers they enable. The generals ensuing lack of cooperation led the Chinese, souring on the junta, to take tougher steps — and the coordinated resistance elements to act in alignment with China. Should this offensive — dubbed “Operation 1027” for its start date — signal a new direction in the anti-regime battle, it will strengthen the cause of multiple ethnic armies seeking to form autonomous regions — both resistance-linked and neutral ones — and dramatically boost Chinese influence with anti-government forces. The pro-democracy resistance would then see a changed environment for plans to create a federal democracy, with Myanmar’s neighbors potentially more open to the possibility of cooperation with the resistance.

The challenge for the international community is to engage more effectively with the resistance leadership, including its ethnic minority members, to help steer the process of a transition to a democratic federal system that will preserve national unity while allowing autonomy for major ethnic groups. While the United States has developed strong ties with the resistance movement, it must now work harder to convince regional partners that relying on the military to stabilize the country is no longer a viable strategy.

China Bears Down on Junta Support for Scams

Since May, China has sent Myanmar’s generals a clear message: It is unacceptable to harbor forced-labor scam syndicates in Myanmar that traffic hundreds of thousands of people from around the world and steal and launder billions of dollars a month from a global population of victims. Beijing insisted that the military control its border guard forces (BGFs) hosting the scam enclaves. The junta didn’t just ignore China’s demands. It stood by as the BGF in Karen state doubled down with public accolades for its blatantly criminal activity on the Thai border, and the BGF in Kokang, fathered by coup leader Min Aung Hlaing as part of a 2009 military operation, ramped up its criminal operations right on China’s doorstep.

Over the summer, China raised the stakes by giving the Chinese media and film industry a green light to dramatize the chaos in Myanmar with popular films illuminating the fate of Chinese nationals who ended up in one of the thousands of forced-labor scam compounds now lining Myanmar’s borders. The films — “No More Bets,” “Tainted Love” and “Lost in the Stars” — have netted more than $1 billion at the box office, sending the message that Chinese nationals can only be safe in Southeast Asia with China’s help. The reality, of course, is that China deliberately looked the other way while this problem incubated. For over a decade, billions of dollars in illicit Chinese capital fueled the development of gambling enclaves under the pretense of supporting Chinese political and economic aims, while also winning the useful backing of corrupt local elites throughout the region.

The regime responded to Beijing’s entertainment industry push with public protests. Junta officials appeared on Chinese TV to complain the media had “hyped up the issue” and that the films damaged Myanmar’s reputation. China should send tourists, not police, to help Myanmar address its economic hardships, they said.

Frustrated, Beijing began acting unilaterally in September, focusing on two border enclaves that enjoy the highest levels of autonomy from central control, the Wa and Mong La areas in Northern Shan State. Both are controlled by powerful local armies and fall well within China’s sphere of influence. They use Chinese currency, electricity, internet and telecommunications, and in the case of the Wa, Chinese-created banking system. The elites of both areas have been trained largely in China, and many have Chinese national ID cards.

It was thus relatively easy for a direct approach from China to strong arm both into taking dramatic steps to crack down on scam operations. In mid-September, 1,207 people were expelled to China from the scam syndicates. Shortly thereafter, China issued arrest warrants for two top Wa officials related to supreme Wa leader Bao Youxiang, charging them as “kingpins” behind crime syndicates in the Wa territory, and detained the deputy commander of the United Wa State Army — the favorite nephew of the Wa leader — while he was visiting China.

The Wa responded by raiding more than 40 scam compounds and handing over 4,000 people to China, including several hundred from other countries. Tens of thousands of computers and phones containing millions of pieces of intelligence on the fraud syndicates also were provided to the Chinese side.

China’s unprecedented bold move against Wa and Mong La failed to spur any action by the junta against its BGF in Kokang, where scamming was out of control. The junta maintained its obstinance even as China lured a group of Kokang elites to a cross-border marathon and folk festival in September and detained 11 of them, including Liu Zhengqi, CEO of the Fullylight Group, one of the most notorious of the Kokang scam compound operators. Liu Zhengqi, who also happens to be a business crony of Min Aung Hlaing, is a prominent official of the coup regime government as well as a committee member of the Kokang Self-Administered Zone (SAZ) and the USDP military political party. To the chagrin of China, by mid-October the Kokang had released only 377 of an estimated 20,000-30,000 hostages held in over 100 scam compounds in its Rhode Island-sized territory.

Anti-Junta Forces Take Note in Forging Plan of Attack

The Myanmar National Democratic Alliance Army (MNDAA), which had ruled the Kokang territory before it was deposed in favor of the Kokang BGF by a Min Aung Hlaing-directed military operation in 2009, is a close ally of the United Wa State Army and NDAA (Mong La), who have provided them protection since their expulsion from Kokang. Seeking to recover its territory from the junta, MNDAA forged a strong alliance, known as the Three Brotherhood, with two other key armed groups, the Arakan Army (AA) and the Ta’ang National Liberation Army (TNLA). The MNDAA also built close ties with the Kachin Independence Army (KIA), giving it strategic space to operate, train and build its capacity across northern Myanmar.

Chinese frustration with the junta and its Kokang BGF was not lost on the MNDAA and its allied anti-junta forces as they planned a coordinated attack on military border posts in Northern Shan State.

In announcing the launch of the operation on October 27, the MNDAA, its brotherhood allies and aligned PDFs used the military’s failure to crack down on criminal enclaves as the immediate justification for a major military operation on China’s border — part of a broader effort to remove what the MNDAA call Min Aung Hlaing’s “drug army.”

While the operation clearly took weeks of planning, it followed a tragic incident on October 20 in which guards outside a Kokang BGF scam compound killed multiple Chinese and Thai individuals, allegedly including undercover Chinese police. The incident certainly infuriated China, with some analysts comparing it to the 2011 Mekong Massacre which left 13 Chinese sailors dead. Without the ability to paint Operation 1027 as an effort to serve Chinese interest in curbing the criminal compounds, the anti-junta forces would have risked strong Chinese disapproval and possible prevention of such an attack on its border. Tacit Chinese support was therefore essential to the operation’s success.

As a result, in a massive loss for the Myanmar army, Operation 1027 managed to overrun more than 100 military outposts along the Chinese border in Northern Shan State, and seize control of key border towns and checkpoints along the preferred trade route from China to Mandalay as part of the China Myanmar Economic Corridor. It demonstrated unprecedented coordination among anti-junta forces, decimating the military forces at almost every step. The junta is now on the verge of losing control of its most important border crossings, representing upwards of 40 percent of cross-border trade vital for tax revenue. Loss of the regime’s cut from the multi-billion-dollar scam operations in Kokang represents a further setback. Should the Kokang BGF fall, the junta would also lose one of its most powerful fighting forces in the north.

Anti-Scam Efforts Expand Chinese Security Footprint

China’s moves against scam operations along its border have clearly expanded Chinese security influence in Myanmar. 

First, China has left no doubt about its ability to influence the actions of ethnic armies when it has the political will to do so. China’s arrest warrants resulted in the Wa stripping their officials of their status without any protest. Chinese willingness to detain senior leaders of the Wa and Kokang SAC officials demonstrates raw Chinese power to force compliance from actors in Myanmar.

Second, the reduction of Myanmar army control in the northern part of the country and the possibility of MNDAA retaking Kokang means that vast parts of Myanmar’s border with China could fall under the control of ethnic armed organizations heavily dependent on the PRC. Their growing relative power and influence will strengthen the position of ethnic armed organizations in future negotiations over a new national compact.

The part played by China in Operation 1027 presents the Myanmar National Unity Government (NUG) with a two-edged sword. On one hand, the military’s defeat in Kokang would be a massive morale boost for the ranks of the PDFs and other elements of the armed resistance, triggering potential breakthroughs in other theaters of the revolution. Moreover, the NUG ‘s recent statement abhorring the presence of transnational criminal networks in Myanmar was noticed by the Chinese side and could position the NUG eventually as a partner to address Chinese security concerns in the country.

On the other hand, signs of increased Chinese security influence should concern all groups in Myanmar. While the anti-coup movement is united for now in its central aim to remove the military from government, should unity and coordination among the disparate resistance groups break down in the future, it could risk Chinese manipulation, playing one party against another, to assert Chinese national interest over that of Myanmar. This is perhaps one of the strongest incentives for resistance actors to consolidate and expand alliances rapidly, formally adopting agreed political visions.

U.S. Interests in Myanmar

The emerging confluence between the criminal networks in Myanmar and the armed struggle against the junta poses three key concerns for the United States.

First is the fact that China’s crackdown on criminal activity along the border is having the effect of moving the scam enterprises to other parts of the country under current conditions of general lawlessness. On the Thai border, the notorious Shwekokko Yatai New City Project appointed a new leadership in September, and launched a new website in October and advertisement campaign at the height of the crackdown in the north.

There are also signs that scam syndicates are operating in Yangon, Mandalay and Naypyitaw and increasingly targeting non-PRC nationals to avoid attracting Beijing’s attention. This could dramatically scale up scamming against U.S. citizens, prioritizing U.S. anti-fraud efforts. The United States should also consider raising this issue directly with China, either bilaterally or in the context of international efforts that China is now joining in the region. The problem is fundamentally Beijing’s responsibility, because the kingpins behind these criminal networks are Chinese nationals and have been aided significantly by Chinese state actors and corrupt officials for over a decade before China finally started to show an interest in dealing with this issue more systematically.

Second, now is the time for the United States to ramp up support behind good governance initiatives and coalition building in Myanmar. Without concerted U.S. action, Myanmar could fall entirely under Chinese influence, leaving the United States and its partners with a pseudo-Chinese state in the heart of the Indo-Pacific. U.S. actions might also include stronger efforts to sanction Myanmar army BGF actors responsible for the global wave of crime.

Third, the United States should take advantage of this turn of events to strengthen efforts to garner greater support for the civilian leadership of the anti-coup movement, focusing especially on India, Thailand and key ASEAN members. Washington should identify common ground for coordinating efforts to address the growing criminality and humanitarian challenges now impacting the entire region. This is especially critical in Thailand, for example, with its new government eager to address the impact of crime in Myanmar on the Thai economy. The United States could provide significant support to Thailand to strengthen its leadership in addressing transnational crime, and especially criminal threats stemming from malign PRC actors.