Compared with the global average level, which is a 65 percent final consumption rate, China's economy is already dependent on strong investment to maintain growth, He said.

"Unfortunately, the consequences of the aggressive stimulus package are impossible to be eliminated in the near term."

Investment in fixed assets, especially in infrastructure construction, should be based on real demand and current fiscal capacity, the adviser said.

"Any increase in credit should make sure that borrowers are able to pay it back. Otherwise, the local debt problem and the shadow-banking system may spark a financial crisis," He warned.

The government should also reduce administrative controls on companies, and it should try to reduce costs for businesses, such as cutting taxes and lowering financing cost, said He.

Slower income growth flashes warning sign

Liu Yuanchun assistant dean of the School of Economics at the Renmin University of China

Slower growth in urban incomes may signal a deeper downside risk to China's economy, adding pressure to the consumption increase in the coming months, a senior economist warned on Tuesday at a forum hosted by the China Center for International Economic Exchanges.

In the first half, urban residents' average incomes stood at 14,913 yuan ($2,405), and the real increase rate was 6.5 percent year-on-year, down from 6.7 percent in the first quarter.

In the first half of 2012, urban incomes grew a real 9.7 percent, faster than the GDP growth rate of 7.9 percent.

The two quarters of consecutive drops in the income growth rate may indicate that the economic slowdown has passed to a deeper level, first from production to the financial sector and then to incomes, said Liu Yuanchun, assistant dean of the School of Economics at Renmin University of China.

"If the deterioration continues, it will restrain consumption, which will be a serious problem that we should pay attention to," Liu said.

The financial system sounded a warning in June through the liquidity squeeze in the inter-bank market, which suggested that the situation of the industrial sector depending on credit is unsustainable, he said.