Yunnan
The Yunnan Province is a Chinese warlord state, that is a member of the Greater East Asia Co-Prosperity Sphere and is a de jure region of the Republic of China, but is de facto independent. They border Xikang to the north, Tibet to the north-west, the Southwest Military and Administrative Committee to the north-east, Thailand, Laos and Vietnam to the south, Guangxi to the east and Burma to the west.
History
With the fall of Chongqing and the collapse of organized Chinese resistance in the late stages of the Second Sino-Japanese war, General Lu Han made a secret agreement with the Japanese towards the end of the war and defected, seeing no further use in resistance against the victorious Japanese. Taking over the province of Yunnan from his cousin Long Yun, Lu Han became a good puppet of the Japanese.
Sandwiched between Sphere members, with the Burma Road and the Kunming-Haiphong Railway running through it's lands and rich in natural resources like Tin and Precious metals, the Zaibatsus see valuable business in the mines of Yunnan. As a result, Yunnan’s main source of trade and income is through the Sphere, with Japan seeing Yunnan as a good trading partner as a result.
Behind this facade however, trouble is brewing internally.
Current Situation
While Lu Han is still in charge of the nation, several militant groups can potentially wrest ownership of Yunnan from his hands.
The National Protection Army
The NPA is the most dangerous of the three major insurgent groups. They are the most active in the mountanous west of the province, and often disrupt supplies. The Western Insurrection is ongoing as of 1962.
Long Yun can potentially defect to the NPA; while Lu Han is out of the nation, he could lead them to take over in a quick coup. Lu Han would be arrested when he tries to reenter the nation. Yunnan would then have a short time to prepare before the go to war with the Sphere.
The National Revolutionary Army
These are remnants of the Chinese military that have refused to surrender after the fall of organized Chinese resistance. They are important in disrupting Japanese supplies along the Burma road. They could ally with the NPA if it takes over Yunnan.
The Communist Party of China
Remnants of the CPC have found high support in the countrysides, leading agricultural revolts. They are closely aligned with the Viet Minh across the border in Vietnam. Like the NRA, they could also join Long Yun's revolt.
The Great Asian War
The Great Asian War would begin when the National Protection Army, after taking over China, goes to war with the Republic of China proper. However, in order to gain legitimacy and support, they must continue their push rapidly. There are several nations that could be swayed to their side in the early stages of the war.
The NRA 24th and 40th Army Groups are remnants of the prewar Chinese Army, each headed by independent warlords. They would only join the war if the NPA's advance is fast enough for them to believe that they could potentially win.
The Guanxi Clique, although in the Sphere in 1962, can defect to the NPA as well.
Outcomes
If the Japanese defeat the NPA, Yunnan would be annexed to the Republic of China.
If the Chinese are able to defeat the ROC, the Japanese would offer peace, ceding all of China except Mengjiang, Guangdong and Manchukuo. Declining this offer would lead to a second offer later, where the Japanese would cede all of China except Taiwan. If the NPA declines and marches into Korea, Japan would launch nuclear weapons, usuallt causing thermonuclear war.