CONVENTIONAL wisdom has it that China consists of two, contrasting halves; the freewheeling, capitalist south, and the state-run, socialist north. In this light, you would expect to find ''the dwarf bar'' in one of the booming and increasingly decadent southern coastal cities, such as Shenzhen or Zhuhai. In fact, this unique establishment is located in the northeastern industrial city of Shenyang. Indeed, in a city best known for its preponderance of heavy industry and Mao statues, this small, privately run bar and karaoke lounge, with its rather peculiar attractions, does stand out from the crowd. The bar is, as its name suggests, staffed by very small people who not only serve drinks but entertain the guests by dancing and, yes, singing karaoke - very badly, it should be added. This bizarre hostelry was the brainchild of a 24-year-old entrepreneur (a non-dwarf) who rented the premises very cheaply, then made a local television commercial advertising for dwarf bar tenders and waiters. The response from all over northeast China is said to have been overwhelming, and very soon the entrepreneur had his full complement of staff. The dwarf bar, or to give it its formal title, the Red Mill (apparently a translation from the original French via Chinese of Moulin Rouge) opened last year and has been the toast of Shenyang's yuppie set ever since. Such entrepreneurial initiatives are becoming increasingly common in northeast China, now that people are moving out of the loss-making state-run enterprises that have dominated the region for so long and have the freedom to set up their own businesses. Although the northeast has yet to see the kind of conspicuous wealth on display in southern China, the development of the private economy has produced some particularly wealthy, as well as influential, individuals. Another bar and restaurant owner in Shenyang, for example, wields so much power that the police switch traffic lights to green whenever they see him approaching in one of his many vehicles. This favourable treatment is in no doubt partly the result of the police eating regularly at his restaurants. But while the big cities have their fair share of entrepreneurial success stories, it is the border regions of the far northeast that have really taken off in the past few years. The town of Heihe, on the Black Dragon River, has grown from a small, remote outpost to a major centre of Sino-Russian border trade in just three years. The town is packed with traders, and even during the spring thaw, when the river is not frozen enough to drive across but still too icy to sail, businessmen can be seen negotiating multi-million dollar barter trade deals. The Russians are primarily selling raw materials and heavy industrial plant in return for Chinese light industrial and consumer goods, but there is a market for just about anything in Heihe, from second-hand clothing to Lenin memorabilia. Trade is set to grow even faster this year, with two bridges in the works and plans to inaugurate possibly the world's shortest short-haul flight, a five-minute helicopter ride from one bank of the river to the other. And it is not just trade with Russia that is booming: border trade with that paragon of state planning, North Korea, is also on the rise. The Korean enclave of Yanbian, bordering the Democratic People's Republic, has experienced a huge boom in the private economy, to the extent that the capital, Yanji, ranks second only to Shenzhen in the number of taxis per person. All of the cars are privately run Ladas imported from Russia.