Hayek, a free-market thinker who was based at the London School of Economics, waged an ideas war with the Cambridge University economist John Maynard Keynes in the 1930s and 1940s that defined the economics debate for most of the 20th century.

"The Austrian school sets out that we as human beings are very ignorant and know little. As a result, decisions about the economy cannot be made centrally with centralized information. Decisions need to be decentralized and made by individuals," he says.

"If you let governments intervene in the market that must reduce human beings' freedom."

Zhang, who is currently on a sabbatical but will return to teaching next year and who was dean at the Guanghua School of Management until 2010, comes from humble origins.

His parents were farmers in Wubu county in the southeastern corner of Yulin, Shaanxi province, and neither could read or write.

He believes this gave him an advantage over the children from more middle class backgrounds.

"They did not know what I did. They never made suggestions, either to do this or that. They never knew in any of the books or articles I published what I was talking about. I was totally free," he says.

Often short of food at home during difficult times in the 1960s, his academic brilliance earned him things to eat when at middle school.

"Some of the pupils didn't study very hard and found it difficult to pass exams and so I helped them in exchange for food," he recalls.

Zhang was among the first-year intake to go to university after the "cultural revolution" (1966-76) when he went to Northwestern University in Xi'an to study economics in 1978.

He then worked for a government economics research institute before studying at Oxford University in the early 1990s.

"It was my second trip abroad. I had been to Japan before. It wasn't, however, as big a culture shock as going to university for the first time. Before I went to Xi'an I had never seen a train or used a telephone," he says.

After Oxford, he went on to co-found the influential China Center for Economic Research at Peking University with Justin Yifu Lin, who became chief economist of the World Bank, and Yi Gang, now deputy governor of the People's Bank of China. He then combined his role as a leading China economist with becoming an academic reformer at the Guanghua School of Management.

During his current sabbatical, he is frequently in demand for opinion pieces from such leading international publications as the Wall Street Journal, and on the international lecture circuit.

Zhang is concerned the Chinese economy is currently over-reliant on investment-led growth, and he fears a repeat of the Asian financial crisis of the late 1990s. "If you look at the current situation, the government uses too many resources but they produce relatively little," he says.

"If you look at Chinese industry, the percentage of capital owned by the State sector is 12 percent higher than (the proportion) of State industry output. Fiscal investment is being used to support this growth. This cannot be sustainable."

He believes measures need to be introduced to bolster the private sector and create a more entrepreneur-friendly economy.

"I think this is not very difficult. First you need to create a more confident environment for private firms. You need a good legal system to protect both physical and intellectual property. This will encourage people to innovate and invest for the long term. Too many entrepreneurs look for short-term returns at present, rather than over a 10 or 20-year period."

Zhang says he believes China can avoid a hard landing if certain reforms are put in place and the economy moves in a more market-driven direction. "Will China have a hard landing? I don't necessarily think so, but it depends on how China will change. I think growth will go down to 7 or even 6 percent but that would be good if we could sustain it for another 20 or 30 years," he says.

The economist is concerned that governments across the world made a wrong move in printing money and flooding their economies with liquidity as a response to the financial crisis.

"You just delay rather than solve the problem. One most important principle of economics is that there is no free lunch," he says.

"In Europe, particularly in countries like Spain, there is a welfare problem and people have no incentive to work hard. Even in the US, Obama thinks if we tax the rich more, we can solve our problem. We have a leadership crisis all over the world, in the US, in Europe and Asia."

One of the major preoccupations of his hero Hayek was hyper inflation and Zhang fears the risk of a more inflationary future with the current obsession with quantitative easing as a policy instrument.

"You cannot let a second mistake solve the first mistake. With the Obama administration the fact that you need a second and third round of QE means the first failed. When you take drugs, a small dose will make you excited but eventually you need bigger and bigger doses," he says.

Contact the writers at andrewmoody@chinadaily.com.cn and luchang@chinadaily.com.cn.

(China Daily 10/05/2012 page38)