Naypyidaw (Myanmar) (AFP) - Branded as Asia's most heavily-armed drug dealers, the China-backed ethnic Wa rebels have emerged as key players in Myanmar's peace process, a development seen as strengthening Beijing's influence over its violence-wracked neighbour.

When Myanmar's new civilian leader Aung San Suu Kyi convened the first round of peace talks with the country's myriad ethnic groups last year, the United Wa State Army's (UWSA) attendance was a side-show to the main action.

But as hundreds of delegates gathered in the capital this week for round two of the peace negotiations, all eyes were on the militia.

A scrum of media surrounded their five grinning representatives as they strode into the vast conference hall in Naypyidaw sporting traditional studded red blazers emblazoned with their symbol of a horned buffalo head.

With them were members of several ethnic groups who have rallied behind Myanmar's most heavily-armed militia after an explosion of violence in the country's northeast.

For years the group has kept a low profile in Myanmar's politics after a 1989 ceasefire deal granted them their own independent territory the size of Belgium on the Chinese border.

The secretive 'statelet' is like a little piece of China -- signs are written in Mandarin, people trade in the Chinese currency the yuan, and the casinos are filled with Chinese gamblers.

From there the Wa are accused of running one of the world's largest drug-trafficking operations, pumping out millions of meth pills across Southeast Asia and increasingly into Bangladesh and India.

- Beijing's bargaining chip -

Analysts say the UWSA's growing muscle in the peace talks is strengthening Beijing's hand as it looks to tap Myanmar's vast natural resources and secure new energy projects.

Publically Beijing has declared its support for Myanmar's peace process, sending a delegate to the talks and mediating with armed rebels, which have fought against the country's military for decades in a horseshoe of conflict-wracked border regions.

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In March, China held military drills in a show of strength after thousands of refugees poured across the border to escape the worst fighting in decades between one insurgent group and Myanmar's army.

At a meeting in Beijing this month, President Xi Jinping pledged to Suu Kyi that China would "continue to provide necessary assistance for Myanmar's internal peace process".

But analysts say Myanmar's giant neighbour is also fuelling the conflict by arming the UWSA with heavy artillery, surface-to-air missiles and light armoured vehicles, and helping them arm their allies.

China's support for the rebels "provides a lever by means of which to apply pressure, actual or potential, on (the government)," said IHS Jane security analyst Tony Davis.

Beijing is also keen to "secure the stability in the border regions" to drive through its One Belt One Road initiative, he said, referring to a huge infrastructure project intended to link Asia to Europe and Africa that would run through northern Myanmar.

- 'The big boys' -

Experts warn the formation of the new UWSA-led bloc of powerful rebel groups now threatens to scupper Suu Kyi's Western-backed peace process.

"The UWSA are the big boys in town," one political consultant to the armed groups told AFP. "Even if you don't agree with everything they say you want them on your side."

On Friday the militia and its allies held private talks with the Nobel laureate over changes to a controversial ceasefire agreement.

First touted in 2015 by the former military-backed government, the deal has been a cornerstone of her push to end the civil wars raging in Myanmar's border regions.

But the UWSA has rejected it, saying it is "no solution" to the conflict.

At a gathering of ethnic groups in the Wa's secretive capital in February, UWSA chairman Bao Youxiang told delegates they must forge a "new path to peace" of their own.

Angshuman Choudhury from the Institute of Peace and Conflict Studies said the new grouping "will complicate the dialogue process".

"The UWSA is a highly influential and powerful group... (and likely to) be far more assertive and forthright in its demands."