"The share of consumption is just one-third of GDP, and that is now reaching the limits of what is sustainable," he said. "So they have to change that. But it will be rocky. It involves a hard landing. To increase consumption, you need to increase household incomes. But the economic slowdown is creating unemployment and people are scared, so their propensity to save increases. So all three segments are falling: exports, investment, and consumption."
One of Soros's intellectual hallmarks is an ability to quickly size up who wins in such a scenario. This is a useful habit of mind if you run a hedge fund. It also happens to be a very Eastern European way of thinking: Vladimir Lenin famously insisted that the key question of any political agenda was "who whom?" -- as in, who is doing what to whom?
Here is how Soros applies that framework to China's political economy. "The great gimmick that was helpful in maintaining economic growth was having an undervalued currency, which was the equivalent of a tax imposed on Chinese labor," he said. "But people did not feel taxed. Since the economy was growing so rapidly, even though the share which accrued to labor was less than appropriate, during this period of rapid growth everyone was satisfied."
At the time, the winners were the Communist Party's elite, whose members personally benefited and saw the economy take off. This political dynamic, however, is breaking down along with the slowdown, he says, as "the willingness of people to accept a regime which is a dictatorship is greatly diminished."
The result, Soros predicts, will be conflict and crisis. "The big question for China and the world is whether the situation will be resolved with an increase in democracy or greater repression," he said. "I am very hopeful it will result in a move towards democracy and a more equitable social system where the rulers get a lesser share. But the ruling class rarely abandons its privilege willingly, so there is bound to be social conflict, as well as an economic crisis."
The volatile future Soros foresees for China is an environment in which he is at ease, both as an activist and as a thinker. Soros is also comfortable balancing his foxy public life and his hedgehog intellectual preoccupations. "To engage in action is necessary in order to provide fodder for understanding," he argued.
But Soros doesn't hesitate to name the work he values most highly. It isn't earning a fortune, though he has done so many times over, and it isn't supporting open society, though he has personally contributed some $8 billion toward that goal. It is coming up with his big idea.
"Trying to understand the human predicament of being born into a world that exceeds our capacity to fully understand," he told me, "is what I am most interested in and most preoccupied with."