Driven by an insatiable demand from the growing Chinese middle class, Myanmar’s jade industry is booming and should be showering the nation, one of the world’s poorest, with unprecedented prosperity. Instead, much of the wealth it generates remains in control of elite members of the military, the rebel leaders fighting them for greater autonomy and the Chinese financiers with whom both sides collude to smuggle billions of dollars’ worth of the gem into China, according to jade miners, mining companies and international human rights groups.

Such rampant corruption has not only robbed the government of billions in tax revenue for rebuilding after decades of military rule, it has also helped finance a bloody ethnic conflict and unleashed an epidemic of heroin use and H.I.V. infection among the Kachin minority who work the mines.

The drug and jade trades have become a toxic mix, with heroin — made from opium poppies that long ago turned Myanmar into a top producer of illicit drugs — keeping a pliant work force toiling in harsh conditions as the Burmese authorities and Chinese business people turn a blind eye.

At a time when Myanmar is experimenting with democratic governance after nearly 50 years of military dictatorship, its handling of the jade industry has become a test of the new civilian leaders and their commitment to supporting human rights and rooting out corruption, as well as an early check on whether they will reject the former junta’s kleptocratic dealings with China.

So far, experts say, they have failed.

Washington is worried enough about the link between jade and violence — and the effect on democratic change — that it kept in place a ban on the gem from Myanmar, also known as Burma, even after it suspended almost every other sanction against the country since the civilian government came to power in 2011. But critics say the sanctions are useless because China attaches no such conditions.