Myanmar - Myanmar's military regime is stepping up efforts to show its neighbors that armed ethnic separatists on its border are under control after violent clashes that sent thousands of refugees pouring into China.

The normally reclusive junta invited a group of more than 50 observers to the Kokang region bordering China, an ethnic Chinese enclave the military says is now under its control after decades of rebellion to Yangon's rule.

The group comprised Western and Asian diplomats and foreign journalists, including two from China, the regime's biggest ally, which has urged the junta to restore stability in a region strategically important to its energy needs.

Rebel fighters from the Myanmar National Democratic Alliance Army (MNDAA), defeated by Myanmar's Tatmadaw army after a recent offensive, were nowhere to be seen, but officials said around 800 had agreed to join its border patrol force.

Normally abuzz with border trade, gambling and racy nightlife, Kokang's once-thriving hotspots resemble ghost towns and many who fled the fierce fighting have yet to return.

Shops, casinos and karaoke bars remain shuttered and thousands of armed troops and security police patrol the towns and man checkpoints along deserted roads.

Local businessman said many people who returned to assess damage to their shops and homes had slipped back into China, fearing more unrest if the army launches a widely expected new offensive against the United Wa State Army (UWSA), a 20,000-strong militia run by opium warlords and drugs barons.

They are worried about the outbreak of war. Rumor has it that there will be battles between government troops and UWSA, said a local trader. Business has dried up almost completely. It will take a long time to return to normal.

Deputy Home Minister Brigadier General Phone Swe said an interim local government in Kokang, installed by Yangon just over a week ago, had agreed to play a part in next year's elections in return for regional autonomy after the polls.

MORE CLASHES?

Many of Myanmar's ethnic rebel groups such as the Kokang and the Wa in its remote, predominantly ethnic Chinese Shan State do not trust the regime and have long refused to disarm, join an army-run border force and take part in the polls, the first in the former British colony since 1990.

In its almost five decades of unbroken rule in the former Burma, the military has failed to establish control along its northeastern border where many ethnic groups believe the junta's political gestures are veiled attempts to neutralize their power.

Peace has been restored, but for how long is unclear.

Ethnic rebels in the Kokang region may have succumbed to the junta's demands, but it remains to be seen if bigger and better armed groups such as the Wa would be so easily defeated.

Phe Xiao Chain, chairman of the local interim administration, said Kokang's new leadership was on good terms with the powerful United Wa State Army.

We are ready to transform into an autonomous region under the new constitution after taking part in 2010 election, he told Reuters, adding that the former rebel leader, Phon Kya Shin, was still at large and thought to be under the Wa's protection.
The junta, which has maintained the clashes were started by rebels who had held 40 policemen hostage, took the foreign diplomats on a tour of a huge weapons factory, which it said was capable of producing 1,500 assault rifles every month.

They were also shown an illicit drugs factory built in the basement of a mansion said to be the home of one of the fugitive Kokang leaders, only a stone's throw from the border with China.

(Writing by Martin Petty; Editing by Jason Szep)

China