Stock trading began five years ago in what was a children's cinema. Its high pillars and ornate red exterior give it the appearance of a church. It houses a fully computerised dealing system designed by Harvard University professors.

The stockbrokers are 20-somethings in striped shirts and trendy ties equipped with mobile phones. On the streets outside, horsemen canter along in boots and traditional silk gowns.

Mongolia embraced the market after a 1990s democratic revolution with a fervour tinged with naivety.

'This was a new concept for us. For a long time people kept asking each other what are stocks? What are shares?' Miss Munkhtsetseg said.

The first post-Communist government began privatising the economy by distributing vouchers to all citizens.

Citizens could trade the vouchers for shares in state-owned companies. In August 1995 secondary trading began.

Until recently, the privatisation process had stalled as the government lost its nerve while the economy contracted.

Unemployment, once unheard of, has risen to 28 per cent while 37 per cent of the population lives below the poverty line.

A year ago, the former Communist Mongolian People's Revolutionary Party lost power for the first time since 1921, when Mongolia became a Marxist state.

The new government led by young democrats under Prime Minister M. Enhsaihan swept to power in an unexpected victory promising to revive the urban economy. It plans to fill government coffers by auctioning off 900 state-owned companies before the end of the century.

'This government is extremely radical,' said Oleg F. Gorelik, who works for the Soros Foundation which is advising the government on privatisation.

It has abolished all import duties and called on its neighbours, China and Russia, to reciprocate.

In the first half of the year, the economy showed a growth rate of 2.3 per cent, thanks to strong gains in the agricultural sector.

The break up of collective farms has led to dramatic gains. Herdsmen have increased the number of livestock from 25 million to 34 million in about five years.

In the past 40 years the size of the herds had stubbornly refused to expand.

'Life is much better now we have private animals. People who work hard and look after their animals get richer,' Namsrai, a herdsman from Hentei province, said.

When his collective farm was broken up in 1992, he was given 20 sheep and six cows. Now he and his family own 300 sheep, 100 horses and 100 goats.

As in China, those living in urban areas who relied on government subsidies complained about the changes.

'It is true some people are literally starving in small towns. They don't own livestock and sometimes the only employer . . . has closed down,' Mr Gorelik said.

Mongolia has a strong mining industry with deposits of copper, gold, uranium, coal and bauxite. The Erdenet copper mine is among the world's largest.

Inefficient management, outdated equipment, overstaffing and social costs mean that even potentially profitable enterprises, like the Erdenet mine, need new capital and guidance on marketing and management.

This month the government announced that half of the 40,000 people who work in the state education system may lose their jobs.

To smooth the changes to the education system, the Asian Development Bank is providing US$15.5 million in loans. The restructuring is being aided by foreign donors and aid organisations. Mongolia has benefited from more aid per capita than any other post-communist country.

The country is banking on a new breed of entrepreneurs taking over state enterprises to create the 240,000 jobs the government has promised to deliver in the next few years.

Last week's Economist magazine carried an advertisement announcing cash auctions open to foreigners and promising automatic listing on the stock exchange.

It invites experts to apply for posts to help the government sell off the most valuable companies.

The crown jewels are the Erdenet copper mine, which has $150 million in annual sales and is worth 20 per cent of Mongolia's GDP; Gobi Cashmere which has 20 per cent of the world's output of dehaired cashmere wool and annual sales of $20 million; and MIAT, the airline.

The sale of state assets has also been advertised on the Internet.

Most of the smaller companies are to be sold off by the end of the year at auctions starting next month.

The programme, however, does not convince everyone.

'People talk as if privatisation is a panacea for all ills, but I am not so sure. Some of the things they are trying to do here are not realistic or applicable to a nomadic economy,' Morrice Rossabi, a professor at Columbia University, said.

It is also making the government unpopular. Earlier this year, 60 per cent of Mongolians chose to vote in a new president, N. Bagabandi, the candidate put up by the former communists.

Many see this defeat as a warning to the democrats although they still hold a majority in parliament.

'There is no country where privatisation has been popular and Mongolia is no exception,' Mr Gorelik said.

In the countryside, there is little comprehension of what is going on and some resentment of the changes.

'Things worked much better in the old days when there was just one party and no one was arguing. Everyone had enough to eat,' 81-year-old Zaya, a war and party veteran, said.

Mongolians are particularly fearful that their weak economy will fall under the control of Chinese investors.

The mainland officially recognises Mongolia's independence but Chinese leaders are privately believed to consider it a former part of the Manchu empire, which was wrested from Beijing's grasp by the Russians after the 1911 revolution.

'The only way to be sure that this does not happen is to sell off the assets in a non-transparent way, but this would also foster corruption,' Mr Gorelik said.

Under the rules, enterprises with fewer than 50 employees will be sold to the highest bidder at public auction. The winning bidder will pay an additional 50 per cent of the price.

Prospective buyers for larger enterprises with more than 50 employees will have to submit sealed bids. Foreigners will have to pay 120 per cent of the price.

The state property committee has not made a valuation of the enterprises and recognises that some are so deep in debt they might be sold for as little as one tugrik - less than one HK cent.

The minimum price for full state-owned enterprises has been set at profits for the last financial year.

In the past two years the state has tried to sell some shops. Efforts have failed as there were no buyers or because the employees have staged protests.

Employees at Ulan Bator's only department store went on hunger strike to resist a sale.

This time the government wants to sell whatever it can to raise money to plough into infrastructure investments.

Initially, it expects unemployment will rise as the new owners trim staff. There are complaints that the government has been moving too slowly to create a welfare safety-net for those laid off.

Mongolia now has one of the most pro-business governments in Asia. To help enterprises grow, the government has cut and simplified the corporate tax structure.

From January there will be a 30 per cent flat tax rate. The abolition of all import tariffs is encouraging talk of free trade zones on the borders.

This globalisation of the economy is certain to transform the stock market. From an instrument to help distribute ownership it might develop into a place to make profitable investments.

'We soon hope that Mongolians and anyone else will be able to buy and sell shares on the Internet. The whole network is being upgraded in preparation for this,' Miss Munkhtsetseg said.