Xining, Qinghai Province, China — Colored lights flash as Western disco music beats out from the little Muslim restaurant. Inside, two young Tibetans eating mutton shashliks make no secret of the Dalai Lama photo badges pinned to their jackets. A waitress dressed in a simple cotton shirt and pants brings them a watery soup. Around her neck hangs a medal of the Sacred Heart of Jesus.
In the People's Republic of China, the world's largest atheist country, Christian, Buddhist, and Muslim have not always been so open in displaying their religious beliefs.
But with 14 million Muslims stretched along China's border with the Soviet Union and dissent in Buddhist Tibet, the growing political significance of these minority groups has forced a more liberal attitude from the ever-pragmatic regime of Deng Xiaoping. China's Christian population, however, has not fared so well.
The Tibetan youths in the Xining restaurant, like their Muslim contemporaries , are enjoying a degree of religious freedom in Communist China denied their parents less than a decade ago.
''We've only been able to wear our badges openly for the last 12 months,'' says Kelsang, a Tibetan brought up in the remote northwestern province of Qinghai - part of the territory still claimed by the Dalai Lama, the Tibetans' religious leader who lives in exile in India.
Kelsang is with a traveling circus in Xining, the capital of Qinghai. The chance meeting with foreigners brings a stream of questions on the well-being of his exiled leader.
''They still tell us nothing,'' he says of the Chinese. ''But things are getting easier. I've been to Tibet twice and it is possible to study once again.''
The improvements Kelsang speaks of have come after 32 years of constant friction between Tibet and China's Communist government, which annexed the kingdom in 1951.
In the latest move, Peking announced in June that Tibet would be permitted a completely unfettered market economy, with freedom of production, pricing, and marketing techniques. Tax exemptions for the area's 6 million inhabitants were also extended until 1990.
Peking's relaxation toward Tibet is seen by most as an attempt to woo the Dalai Lama back, even temporarily, and so absolve China from the frequent criticism of its colonial stance toward Tibet.
China has more Muslims than Saudi Arabia, Kuwait, and the United Arab Emirates combined. Most of them belong to the Turkic minorities that inhabit the country's remote northwest and have relatives in the the Soviet Union.
Many listen to Soviet broadcasts such as ''Radio Station Peace and Progress'' that tell of the ''good life'' and greater religious freedom supposedly found on the other side.
Peking, still smarting from the defection of 30,000 Muslim Uygurs in the 1960 s after rigorous assimilation programs were introduced, is only too conscious of this. After nearly three decades of persecution, China is now returning some freedoms to the minorities.
In Kashi, 125 miles from the Soviet border, the Islamic life style obliterates all but the most official level of Chinese influence: soldiers of the People's Liberation Army and Han Chinese in the senior local positions. Mosques dot almost every street of low, whitewashed, mud-brick houses. Veiled women are seen in the streets and, on Sundays, a huge bazaar is conducted under canvas awnings where camels, yaks, and donkeys are traded.
Unlike the rest of China's bulging populations, the minority peoples are free to have as many children as they wish. They are provided with special ration cards for their mutton. Han Chinese who offend a Muslim by using his well or by parading pigs are likely to be dealt with severely. Seventy-five percent of the region's budget is provided by Peking.
Chinese Muslims are once again making the pilgrimage to Mecca. About $350,000 has been spent on building new mosques in recent years and 14,000 have been reopened.
According to Imam Kasi'm Kari Haji, nearly 20,000 faithful turn up each Friday at Kashi's Id Kah Mosque.
''When the 'gang of four' was in power,'' he said, ''the Islamic people could not pray in their mosques. When a person died they could not pray the special prayer. We could not practice our religion. Now we can do this.''
For China's Christians, the persecutions have not stopped and few real freedoms have been restored. For all but the officially controlled Christian organizations, practicing as a Christian can still bring abuse.
Last year several elderly Chinese Jesuits were sentenced to prison terms of up to 15 years because of their refusal to denounce the Vatican. This year Protestants holding revival services in their homes are reported to have been arrested. Some are said to have been tortured and others are still being held.
The Communist regime is not about to tolerate unfettered Christianity. It sees it as the import of foreign influence in previous centuries and an integral part of China's humiliation at the hands of foreigners earlier this century.
Christianity is still a sensitive issue with the Communist leadership because it is a relatively recent phenomenon in China. The first church was built in Peking in the 17th century, compared with Buddhism and Islam, which were introduced thousands of years ago.
In 1957 Peking forced the Chinese Catholic Church to break with Rome. It formed the Chinese Patriotic Catholic Association to control the activities of China's estimated 3 million Roman Catholics. But an underground church of unknown proportions remains loyal to the Pope.
All overtures from the Vatican for reconciliation have so far been rejected by Peking as interference. Earlier this year bishops of the Chinese Patriotic Catholic Association talked of revamping seminary materials to eradicate what they call the ''feudal role'' of the Pope.
For Protestants, the split with their parent churches abroad appears to have been less severe. In the past few years there has been a revival movement carried out in house churches throughout the country.
Peking admits to a Protestant population of 2 million. But according to other sources, the house churches account for a further 20 million to 30 million believers.
But for all worshipers in China - even those enjoying comparative freedom - the essential contradiction of professing a faith in a country governed by a system that recognizes no beliefs is likely to continue to present problems.