The success of the government's stimulus package boosted consumption. But the structural dependence of economic growth on investment has not changed. China needs to give its consumers the spending power to sustain economic growth.

Stimulus package boosted consumption

China's GDP rose by 11.1 percent in the first half of 2010, a slight deceleration from the 11.9 growth rate of the first quarter.

In the first half of the year, retail sales reached 7.27 trillion yuan, up 18.2 percent year-on-year. Urban consumption increased 18.6 percent and rural consumption by 15.6 percent. As the macro-economy rebounded, consumption maintained steady growth.

The government's new-for-old home appliances policy in the countryside led to a rush to buy. In the first half of 2010 rural sales of home appliances reached 67.8 billion yuan.

Stimulus policies also boosted sales of cars and motorcycles in rural areas. Car sales reached 9.02 million, up 47.7 percent year-on-year. Cars and motorcycles sales in the countryside reached 1.426 million and 4.09 million respectively.

In the first half of 2010, the number of urban residents employed increased by 5 million and numbers of migrant workers employed increased by 6.32 million, laying a solid foundation for boosting consumption.

Little progress on improving income distribution

On consumer trends for the second half of 2010, officials expect continuing growth in line with the economic recovery and the improving employment situation.

But China's economic growth still depends heavily on foreign investment. And the share of final consumption in the overall economy is far behind the United States and Europe and even lags behind India and Brazil.

To expand consumer spending, China needs to give its citizens' the sustainable capacity to consume by reforming income distribution, boosting employment and improving its social security system.

Although disposable income rose 7.5 percent in urban areas and 9.5 percent in rural areas last year, the proportion of consumption in overall GDP remains very low. Facing astronomical housing, healthcare and education costs, China's citizens are still saving too high a proportion of their incomes.

China's skewed income distribution is a hot topic among the public, but so far there is no sign of action from the government. As Jin Linbo of the Chinese Academy of Social Sciences put it, low wages and poor social security have become seemingly insurmountable barriers to boosting the share of consumption in the economy.