At a checkpoint outside Panghsang, in the mountains of eastern Myanmar, a teenage girl in an olive-green uniform decorated with distinctive United Wa State Army (UWSA) patches is checking ID cards and passports. No older than 14 and sporting an eye-catching furry hair grip, she looks like she belongs in school rather than in the army. But the AK47 dangling from a nearby hook makes it clear that she has long since left the classroom. Welcome to Wa State, an unofficial country within a country where children are entrusted with automatic weapons and stand guard over government buildings, as well as man checkpoints and direct traffic. Many are recruited when they are as young as six years old. In Wa State, which is defended from the rest of Myanmar by the UWSA, few think it strange that child soldiers should play their part. In fact, little about the state, which lies along Myanmar's border with China, can be considered what we might call normal. Home to 600,000-odd people, it is a lawless region. Part of the notorious Golden Triangle, the source of most of Southeast Asia's illegal narcotics, it is a place of refuge for drug traffickers, people smugglers, gamblers, opportunistic Chinese traders and companies, and anyone who wants to hide from the generals who still run Myanmar. To the junta, the state is known as 'Special Region 2' (Special Region 1 is Kokang, in northern Shan State), an ethnic enclave it is increasingly determined to bring under its control. But for the Wa people, one of Myanmar's 135 ethnic groups, it is the nation they have been fighting for ever since Burma, as Myanmar was then called, gained its independence from Britain, in 1948. For the past 22 years, an uneasy ceasefire has existed between the 20,000-strong UWSA and the Myanmese army. That has allowed the Wa to establish a de facto country, complete with its own government, flag, banks, tax system and car licence plates. Wa State's capital, Panghsang, has emerged as Asia's most unlikely boomtown. The gaudy homes of the newly rich sit behind high walls topped with coils of barbed wire, the city's casino is packed 24 hours a day and top-of-the-range pick-up trucks and SUVs imported from Japan via Thailand roar up and down the dusty streets. 'There are more cars than people in Panghsang now,' says one local man who, like most people we speak to here, does not want to reveal his name. Getting to Panghsang, a city of 50,000 people set in a valley surrounded by jungle-covered hills, requires subterfuge. With foreigners barred from travelling to Wa State by the Myanmar regime, we cross the narrow Nam Ka River, which separates Panghsang from Yunnan province, on one of the many bamboo rafts that make the journey illegally every day. It's a route more and more people are using, as tales of the city's booming economy attract increasing numbers of economic migrants from China. Panghsang's prosperity, though, is built on the UWSA's control of much of the drug trade in the Golden Triangle, the region where the borders of Myanmar, Laos, Yunnan and Thailand meet. In 2003, the United States named the UWSA as Southeast Asia's biggest heroin traffickers and Washington continues to offer rewards of up to US$2 million for senior UWSA figures it believes are implicated in the trafficking. Although the amount of heroin being produced has declined in recent years, in part because of pressure from China, the United Nations Office on Drugs and Crime believes at least 5 per cent of the world's opium is grown in Myanmar, much of it in Wa-controlled areas. Furthermore, the UWSA has diversified into the manufacture of yaba, the methamphetamine pills that have become an epidemic across Asia. Yaba, which means 'crazy medicine' in Thai, is highly addictive and prolonged use can result in serious psychiatric disorders. It's cheaper and easier to produce than heroin, and makeshift yaba factories that can churn out up to 10,000 pills an hour are scattered across the hills of Wa State. It is easy to smuggle them across Myanmar's long, mountainous frontiers with Bangladesh, China, Laos and Thailand. That the illegal drug trade is the motor of Panghsang's roaring economy is an open secret in Wa State. Yet, no one in Panghsang we speak to is willing to acknowledge that explicitly. That's despite evidence of a serious home-grown drug problem; with a single red yaba pill costing just 10 yuan (HK$12) in the state, as opposed to 50 yuan on the mainland, the drug is smoked openly in the upmarket karaoke bars that cater to the town's elite, as well as in the rural hill villages where incomes are as low as 100 yuan a month. Such is the scale of the denial that drug trafficking is behind Panghsang's boom that those who do get addicted receive no help from the authorities. 'There are no drug-prevention programmes in Panghsang and there are no NGOs doing drug-prevention work here,' says Ye Myint Oo, a Burmese doctor working in Panghsang with Health Poverty Action, a Britain-based NGO. 'That would be like the Wa government admitting there's a drug problem.' Nor has the UWSA's involvement in the drug trade deterred Chinese companies from investing in Wa State. On a hillside 30 kilometres north of Panghsang, a foreman from Yunnan, with a handgun strapped to his hip, is overseeing a crew of mainland workers building accommodation blocks for a Chinese-owned rubber plantation. 'Five years ago that was all opium,' he says, waving towards the neat lines of newly planted rubber plants. He points out an open mine at the bottom of the valley. 'That's also owned by a Chinese company. They're mining rubies.' The growing Chinese presence in the state is happening despite the fact that Beijing is the Myanmar junta's biggest ally. Cross-border influence is so pervasive that Putonghua is the main language spoken here and the yuan is the official currency. It should be noted, though, that Wa State is far closer ethnically and culturally to China than it is to the rest of Myanmar. Just across the border, in Yunnan's Menglian county, are 400,000 ethnic Wa Chinese citizens. Most have relatives living in Wa State. In 1958 alone, an estimated one-third of Yunnan's Wa population fled across the border to escape communist rule. More followed in the 1960s, during the Cultural Revolution. Many people in the state hold mainland passports and those who don't are permitted to enter Yunnan on the ID cards issued by their unofficial government. The close ties between the Wa in Myanmar and their cousins in Yunnan ensure there's a constant flow of people, goods and money between the two regions. Both of Panghsang's main markets are dominated by mainland traders, who commute to the city daily. So many Yunnanese now work in Panghsang that some locals estimate up to a third of the daytime population is Chinese. 'I have a shop in Menglian, too, but Panghsang is much better for business. It's bigger and there's more money here,' says Yang Qian, who has been selling cosmetics imported from Thailand in Panghsang for six years, while living on the other side of the Nam Ka River. Ethnic Wa from Yunnan are no longer the only Chinese immigrants to Panghsang. The city's streets are lined with restaurants offering dishes from as far away as Sichuan, Guizhou and Guangdong, a sure sign that more and more Han are migrating to Wa State. 'The place is changing so much with all the investment from China,' Yang says. 'When I first came here, most of the roads were unpaved, now there are new hospitals and roads being built by Chinese companies, and many people from Hunan province are coming here to open shops.' Wa State has also become a bolt hole for those who need sanctuary. Many come from neighbouring Shan State, where the Shan maintain their own struggle for independence (see Post Magazine; February 13: Shadow War). 'There's a lot of investment from Shan State. A lot of rich Shan are moving here now and building houses. This is the most free place in Myanmar and, if you need to hide from the government, then this is the best place to do it,' says Li Yanmei, an ethnic Chinese Myanmese manager of a local company. Panghsang's mix of Wa, Chinese and Burmese residents, as well as people from Myanmar's bewildering number of other ethnic minorities, gives the city a multicultural feel that is extraordinary for such an isolated spot. Nor is Panghsang a commercial backwater. Shops selling popular mainland clothing brands, iPhones and Apple Macs, jade and gold, sit alongside Korean restaurants, coffee shops and even an unlicensed Kentucky Fried Chicken outlet. In case you are lulled into a sense of retail security, though, the UWSA child soldiers and teenage police on the streets bring you back to the present with a jolt, reminding you what a bizarre and sinister city Panghsang is. Most are either orphans or from rural Wa State. Outside Panghsang, the paved roads turn into dusty, potholed tracks and people live in wooden shacks rather than the ostentatious three-storey mansions favoured by those who have prospered. Their children make ideal recruits to the largest and best-equipped of all the ethnic armies still fighting in Myanmar for a homeland. Above all, Panghsang's sheer lack of rules has made it a magnet for every sort of crime. Rubies mined nearby are smuggled into China and Thailand while shops in the market sell endangered animal parts, such as tiger claws and bear bladders, for use in traditional Chinese medicine. Wa babies are sometimes smuggled across the border and sold for as little as 2,000 yuan to childless Chinese couples. Outside the casino that stands in the centre of town, teenage prostitutes wait for clients while, inside, locals and punters from the mainland, where gambling is illegal, wager up to 50,000 yuan on a single hand of baccarat. Despite Panghsang's reputation as a gangsters' paradise, few immigrants seem overly concerned about living here. 'It's no problem. Panghsang is safer than China. I don't have to worry about thieves stealing from my shop,' says Qin Chuan, a 30-year-old from Hunan province who sells jeans from a stall in the main market. Some Wa residents are less sanguine about security, despite the apparent lack of petty crime. 'Panghsang is a scary city because of all the drugs,' says one resident. Others find the claustrophobic effect of living in Wa State has more of an impact on them than the illicit activities that occur here. 'It's more boring than anything living here,' says Li Yanmei. 'There's nothing to do and nowhere to go.' Recently, that sense of isolation has increased, with the Myanmese authorities cracking down on international organisations operating in Wa State. The UN Development Programme and the World Food Programme are just two of those that have pulled out under pressure. 'A lot of NGOs have their head offices in Yangon and the Myanmar government doesn't want them working here,' says Ye Myint Oo. China, too, is believed to be intensifying its efforts to get the UWSA to abandon the manufacture and trafficking of opium and yaba. Last month, the Wa government increased taxes on shops and businesses in Panghsang, in some cases by up to 200 per cent. It was an unexpected development that is being seen as evidence that the profits from the drug trade are no longer enough to fund the UWSA, and that alternative revenue streams are needed. It may soon need all the cash it can get. Since 2008, Myanmar has insisted that all ethnic forces be incorporated into the national army as border guards while stepping up its campaigns against them. The UWSA, like the Kachin, Karen and Shan armies, has refused to comply with the demand. Many Wa believe it is only a matter of time before they are attacked. If that happens, a brutal guerrilla war is likely to ensue. The Wa have no shortage of weapons and are famed and feared for their ferocity in battle. Headhunters until as recently as 50 years ago, they fought alongside the British, who called them the 'Wild Wa', against the Japanese in the second world war. In a coffee shop in Panghsang where the young Wa elite congregate to sip single malt whisky and smoke Cuban cigars, the mood is one of uncompromising defiance. 'We don't want to be ruled by those people,' says a 21-year-old. 'It doesn't matter if it's Than Shwe and the generals or Aung San Suu Kyi. We will never accept that.'