Per capita GDP and rural and urban consumption expenditure in Ningxia are analyzed and compared with the average national levels of China. Principles, methods and advantages of Expanded Linear Expenditure System Model (ELES) are introduced. According to the relevant sample survey data in Ningxia in the years 1996 and 2006, eight variables of consumption expenditures are selected, which are food, clothing, housing, household equipment and supplies, transportation and communication, education and entertainment, medical care, other commodities and services. ELES Model is used to analyze the consumption expenditure of rural and urban residents in Ningxia in the years 1996 and 2006. Result shows that within ten years, consumption level of urban residents in Ningxia has developed from well off to affluence; and the consumption concept of rural residents is increasingly upgraded. At the same time, consumption level of rural residents has changed from having enough food and clothing to the well-off level, along with the sharp decrease in consumption expenditure of food, clothing and housing. Based on this, suggestions are put forward to expand the consumption level of rural and urban residents and to promote the sustained economic growth in Ningxia, China.