Red flags flutter over bullet-scarred buildings in the strategic Myanmar city of Lashio, which an ethnic minority armed group linked to China seized from the military in its biggest defeat for decades.

Lashio is the largest urban centre to fall to any of Myanmar's myriad ethnic minority armed groups -- who have been fighting the central authorities on and off for decades -- since the military first seized power in 1962.

But analysts say the Myanmar National Democratic Alliance Army (MNDAA) will struggle to govern Lashio, which straddles a key trade route to China and normally has a population of 150,000.

Most fled the weeks of fighting that culminated in the city's capture last month, and those who remain fear a return to the bloody violence.

Residents and rescue groups say dozens of civilians were killed or wounded as the military pounded the town with air strikes and both sides launched rockets and shells at each other.

While the fighting has eased since August, junta planes are still flying sorties and conducting air strikes, including on Monday and Tuesday night.

"We cannot say Lashio is back to normal but everyone is trying to act like it's normal," real estate agent Soe Soe, 30, told AFP.

She fled in July but returned after the MNDAA took over and said she will stay, even as smaller clashes continue in the vicinity.

"The situation is uncertain right now," she added. "Everyone is afraid."

'No experience'

The MNDAA was part of a trio of ethnic armed groups that launched a coordinated offensive against the junta -- which ousted Aung San Suu Kyi's civilian government in 2021 -- a year ago, taking it by surprise and seizing swathes of Shan state.

Junta jets are still pounding the city and targets have included hospitals and administrative buildings, according to the US Institute of Peace's Myanmar programme chief Jason Tower.

They "seem to be focused on preventing the MNDAA from advancing post-conflict reconstruction and returning the city to normal under its governance", he said.

Running Lashio will stretch the MNDAA's manpower and capacity, he told AFP.

"It is now trying to govern a much larger territory and faces a wide range of challenges it has no experience dealing with."

'Everyone is afraid'

Lucrative lead, silver and zinc mines lie near Lashio, while hundreds of millions of dollars' worth of trade passes along the highway that snakes northeast to China through the jungle-clad Shan hills each year, according to the junta's commerce ministry.

Reaching the city is difficult due to fighting along the road.

Within it, rifle-toting MNDAA policemen in black uniforms patrol the streets as the group -- which analysts say maintains close ties with Beijing -- works to convince former residents and businesses to return.

Vendors marked out new plots at a market damaged during the fighting, but schools were shuttered and traffic was thin on the usually busy highway.

As the group tries to restore normality, MNDAA-affiliated media have released regular updates about new administrative measures, from reorganising the main market to distributing rice and supplies to needly families.

But many who fled the fighting are yet to return.

"Everyone is afraid because the fighting only just finished," said Mae Gyi, 28, a vendor.

Junta air strikes have killed and wounded several civilians, according to the MNDAA.

And the ethnically Chinese MNDAA are an unknown quantity for Lashio's diverse population of Bamar, Shan, and other groups.

In areas controlled by the group in its Kokang homeland along the border with China's Yunnan province, the language of administration, the currency and internet providers are all Chinese.

It has other echoes with the People's Republic: in April the MNDAA executed three of its members in the border city of Laukkai for murder and selling stolen weapons, following a public trial in which each of the accused wore a placard detailing their crimes in Chinese.

Nowhere to go

The approach has alarmed some Lashio residents, with one former inhabitant -- speaking on condition of anonymity -- telling AFP they would not return until the MNDAA left.

"Only our parents went back to Lashio," the former resident said.

But others have welcomed the tough approach.

"The MNDAA has cleaned the town, and they have been helping the people... They helped to prevent prices from becoming too high," said another former resident, whose family have returned.

AFP has contacted the group on its plans for administering Lashio but received no response.

Only "around 20-30 percent" of the town's population had returned, said Soe Soe, but she was determined not to flee again despite the continuing low-level fighting.

"We don't have anywhere else to go," she said. "So I came back to Lashio and am trying my best to stay here."