Myanmar has begun to transition from isolated junta to one which is increasingly embracing democracy.

This shift in outlook is reflected by the creation in 2005 of a new capital Naypyidaw: 320km (199 mi) from the old British colonial capital of Yangon (Rangoon). For decades prior Myanmar had been viewed as an insular military dictatorship akin to fellow hermit kingdom North Korea sans nuclear weapons and eccentric dynasties. If the country—a product of the partition of British Raj—enjoyed any presence in the collective consciousness of the West, it was in the form of Aung San Suu Kyi; Nobel prize-winning democracy advocate and political prisoner.

This opening to the wider world and relaxation of junta rule has shifted the balance of power within the country. Prior to these developments, the Burmese junta could only count China among its supporters. For decades the Chinese government has maintained a working relationship with Myanmar, viewing the country as part of its sphere of influence. Myanmar and China share an extensive border; with the Burmese provinces of Kachin and Shan next to the large Chinese province of Yunnan. Due to the isolation of the Burmese government, China enjoyed sole access to the country, benefiting from trade in natural resources while largely adopting a laissez-faire approach to the Burmese socio-political situation.

Despite this stance, Chinese traders and businesses have for years engaged in both legal and illicit commerce with the inhabitants of Kachin province. The Kachin ethnic group constitutes the majority of the province and has been embroiled in conflict with the central Burmese government for over 50 years. The Kachin Independence Organization (KIO) and its military wing, the Kachin Independence Army (KIA) have profited from selling jade (trade in jade alone between China and Myanmar totaled $8 billion in 2011) and teak to Chinese buyers, thus funding their conflict with the ruling junta.

Furthermore, while China has long had significant infrastructure, mining and hydrocarbon investments in Myanmar, gone are the days in which the Burmese government rubber-stamps Beijing’s projects. The changing times were exemplified by the decision of Burmese President Thein Sein—following local protests (the KIO itself wants local control over natural resources and devolved powers)—to suspend construction of the $3.6 billion, Chinese backed Myitsone dam.

Myanmar’s opening to the West will see a diversification of foreign investment in the country, eroding China’s monopoly. Whereas Beijing can tolerate some American market share in Myanmar’s economy, the Chinese government is gravely concerned that Myanmar’s internal ethnic conflict in Kachin will become internationalized, leading to American troops on China’s southeastern border. China is already concerned with American encirclement in East Asia: the thought of an American military presence in Myanmar is utterly abhorrent for Beijing.

Myanmar’s swift opening has caught China off guard and Beijing is rushing to increase its engagement with Naypyidaw, fearing American encroachment into the region. These fears were confirmed in November 2014 when President Obama visited Myanmar. The United States government has long had connections with the pro-democracy movement and Aung San Suu Kyi in particular. Beijing fears that it will lose influence as the political winds change and its junta partners realign to remain politically viable. Notably, Myanmar has already expressed a willingness to act as an arbiter for Sino-ASEAN territorial disputes in the South China Sea; a suggestion totally counter to China’s emphasis on non-interference and bilateral dialogue. Third party arbitration is also the favored course of the United States. This confidence on the part of Naypyidaw is indicative of a government courted by several powers and no longer beholden to China.

For years Beijing has placed all its bets on the central government while tolerating if not prolonging the KIA’s struggle through nebulous trading. Moreover, Beijing long delegated responsibility for the Kachin issue to provincial officials in Yunnan. This relaxed attitude was fostered by the fact that fighting between the KIA and government was sporadic. However in 2011 tensions flared, resulting in the cessation of a 17-year long ceasefire. Unfortunately for China all of its chickens are now coming home to roost, as the rise in violence (potential disruption of hydrocarbon flow and humanitarian crisis) coincides with Myanmar’s opening (loss of influence in Napypidaw, potential American inroads).

Increased fighting between Dec. 2012 and Jan. 2013 saw artillery shells land on Chinese territory and an influx of thousands of refugees. Currently, some 8,000 persons inhabit the Je Yang refugee camp, right across the border from Yunnan. These refugees engage in trade with Yunnan merchants, relying heavily on imports from China, and utilizing Chinese communication networks (Myanmar’s military blocks Burmese signals in the region). Furthermore, China’s minority Jingpo population on the Yunnan-Kachin border is in all but name the same ethnic group as Myanmar’s Kachins. Beijing naturally fears ethnic sympathies prompting cross-border movement of KIA supporters, weapons, and conflict spillover.

Qin Liwen, a former analyst for MERICS explains China’s dilemma in Kachin, stating that:

“On the one hand it’s good for China to have special connections with the Kachin so [China has] some kind of “chess on the board [sic]” when they talk to Myanmar central government. But if they get too supportive the Kachin people will of course make trouble. So it’s always a very subtle game to balance it all.”

This longstanding trading relationship with the KIO/KIA has resulted in several hundred Chinese traders and workers becoming trapped by the fighting in Kachin. In response, China has increased the presence of Chinese troops (PLA) on the border. Furthermore in 2013 Beijing arranged a bilateral (KIA-junta) dialogue with China as the negotiator. China has also created a new government position—Special Envoy on Asian Affairs—headed by Wang Yingfan, to deal with Myanmar.

Following the increase in violence, Beijing has also sent Vice Foreign Minister Min Fu Ying and PLA general Qi Jianguo to Myanmar for negotiations and security consultations. Furthermore, in a move to counter Obama’s rapprochement towards Myanmar, Chinese Premier Li Keqiang also visited Myanmar in November 2014.