China experienced unique deflation in 2023, which persists into 2024 due to a real estate crisis and broader economic challenges. Consumer prices dropped by 0.8% YoY in January, marking the steepest decline in 15 years. This trend, attributed to factors like industrial overcapacity and a real estate recession, impacts household incomes, corporate earnings, and government taxes. The ongoing slump in the real estate market has further depressed prices for household items and residences, with home sales dropping by 6.5% last year. Expectations of further deflation are likely to cause consumers and investors to reduce spending, exacerbating debt overhang and negatively impacting investment and consumption.