The wide streets of Ulan Bator were almost deserted. Snow flakes drifted into the headlights of the Russian-made Lada taxi. The voices of street children living underground among hotwater pipes echoed up through open manholes. An occasional figure in trilby hat and wrapped in a del, the cloak worn by Mongolian horsemen, hurried by in the darkness. We stopped in an unlit street and I pushed open a nondescript wooden door.

"Bon soir, monsieur," said a beautiful Mongolian woman in the hallway. "Vous avez une reservation?" She led me into a packed, noisy French restaurant, where foreign and Mongolian diners were tucking into pepper steaks and bouchee a la renne, and drinking Beaujolais and cognac.

The Cafe de France, run by two Corsicans, is the latest western hostelry to be opened in the remote Mongolian capital. Practically the only nightspot a decade ago was the state-run Ulan Bator Hotel behind Lenin Park. That was before the communists were swept from power and the land-locked central Asian country embraced capitalism. Now there are 580 night clubs, bars and restaurants in a city of 650,000 people, half of whom still live on the outskirts in felt-lined tents known as yurts, or gers.

In the biggest nightclub, the Top Ten disco, hordes of teenagers - the girls wearing platform shoes which are all the rage - dance, watch striptease and drink Genghis Khan beer until 4 a.m. Genghis Khan, the 13th-century Mongolian master of the universe, has been rehabilitated as a national symbol of independence, and his name, banned by the communists, now appears everywhere, on beer bottles, on matchboxes and on hotels.

Other establishments cater for less erotic but no less exotic tastes (for Mongolians), like the Churchill Tea Shop which specialises in Cornish pasties, the Matisse art cafe with its impressionistic paintings, and the Sakura Harvest Japanese restaurant patronised by sushi lovers. The German-Malaysian casino in the Genghis Khan hotel has just closed after a year in operation, but only because the government has given the gaming licence instead to a Macau-based company which plans to transform the city's single department store, a badly-stocked relic of the communist era, into a Mongolian Caesar's Palace.

Downtown Ulaanbaatar city, the capital of Mongolia

Ulan Bator's new elite identify with western culture to a much greater extent than the neighbouring Chinese. Their city has the atmosphere and smells of a provincial Russian town, Russian is the most common second language, and they boast they are more European than Asian. Since 70 years of communist rule ended in 1990, Mongolia has become one of the most pro-business countries in the world. Many of the night-time revellers can be found by day glued to mobile telephones in their BMWs as they flash past old Soviet-made trolley-buses, or hanging out at the stock exchange, an ochre-coloured old cinema built in Russian-classical style with a computerised dealing system designed with the help of Harvard University graduates.

A perplexed-looking Lenin still looms high on a pedestal above the fir trees in a little park, though one day a statue of Milton Friedman, the guru of free market economics, may take its place, if one of the brashest government advisers has his way. Newt Gingrich too can claim a niche in Mongolian history. The US House Speaker sent the authors of his "Contract with America" to Mongolia to help local democrats bring out a "Contract with the Mongolian Voters". It became the biggest publication ever in Mongolia, with 350,000 copies distributed among the country's 2.4 million people, and it helped the four parties in the Democratic Coalition to win a majority in the Mongolian parliament.

The rush by Mongolian democrats to embrace the free market has caused US conservatives to see this country of steppes, taiga and desert, as the bright shining light of developing-world capitalism. The International Republican Institute, the Republican wing of the National Endowment for Democracy in Washington, has an office in Ulan Bator to train local politicians. With their encouragement, the young democratic reformers have launched a sweeping privatisation programme - though it has since stalled - and introduced a bill for a 30 per cent flat tax, the dream of US Republicans such as Steve Forbes.

Officials from the Soros Foundation, the International Monetary Fund, the Asia Foundation, the Asian Development Bank, USAID, the World Bank and other international organisations have descended on Mongolia to nurse it through shock therapy. The prognosis is mixed. A recent USAID report suggested that financial sector aid programmes might actually be hindering modernisation as they have helped bankrupt banks to find ways to stay afloat.

Christian groups have also arrived to seek converts in a country where almost half the young men were Buddhist monks before the communists took over in 1921 and stamped out all religion. A Catholic church opened in Ulan Bator three years ago, serving a congregation of 94, and there are in total 20,000 religious believers in 18 registered religions, according to a Mongolian magazine editor who said that "as in any transition period young people have no beliefs and are confused". He had heard stories, he added happily, of missionaries going out into the steppes laden with bibles for nomads "who queue up for the bibles often because they want the pages to roll their cigarettes".

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