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Why you should care that China's economy is slowing

Daily Ticker

China is the second largest economy in the world, but its growth is slowing and that's impacting the greater global economy.

China's economy likely grew at 7.6% in 2013, according to an official government report. That tops the government's 7.5% target and is only slightly below 2012's 7.7%. But Ruchir Sharma, the head of emerging markets at Morgan Stanley Investment Management, doesn't buy it.

Related: U.S. Economy Will Trump China's in 2014

China is "now struggling to grow at the old rates that they had gotten used to" and had "achieved using a lot of debt," Sharma tells The Daily Ticker in the video above. "China will not be able to grow at 7-7.5% for the next three to five years...The growth rate will more likely be closer to 5-6%."

That's nothing to scoff at but something to pay attention to, says Sharma. "If [China's] growth rate slows to 5% or so, even the U.S. could feel the pain."

China is the second largest trading partner of the U.S. after Canada (and before Mexico), accounting for 14.5% of total trade in goods, or $512 billion ($109 billion in exports and $403 billion in imports), according to the U.S. Census Bureau.

Related: Could China pose a risk to the 2014 global economy?

Other emerging markets, especially those commodity-driven economies, are already suffering as a result of China's slowdown, says Sharma.  "Brazil, Russia, and South Africa have been performing quite poorly over the last two to three years."

But there is a positive side to the China story. A slower Chinese economy means less demand for commodities like gasoline products, which can only help developed economies like the U.S.

Related: Why the Market Isn’t Worried About China’s Saber Rattling

And slower growth in China suggests the country is no longer relying on massive levels of debt to prime the economy. "The key is whether China is going to let go of that in the short term to achieve long-term stability," says Sharma.

Tell us what you think. Will a slower-growing China help or hurt U.S. consumers and investors?

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