Abstract: In this paper, we use the sample of China’s listed companies in Shenzhen and Shanghai' s A - share stock exchanges during year2003 to 2007 to examine whether competition effect of China' s corporate governance reform or regulation effect is better, meanwhile to analysis the relationship between corporate governance and its market value. The analysis proves that there is a close relationship between corporate governance and corporate performance of China’s listed companies: the proportion of outside directors, shareholding of top executives, shareholding of largest shareholder, concentration of shareholding in the hands of the second to the tenth largest shareholders, cross - listing in other stock exchanges and controlled by governments etc. all have an significant impact on corporate performance. The paper identifies a comprehensive set of governance mechanisms for China’s listed companies, and creates a corporate governance index CG relied on Chhaochharia & Laeven ( 2007 ) 1-2and Chong - en Bai ( 2005 ) 3 ’s studies. Then the paper identifies the variable of competition effect and regulation effect. The findings show that corporate governance’s competition effect is better than regulation effect in a long term. This result can contribute to China’s corporate governance reform on the extent to which the reform can be left to the "invisible hand" of the market or require government interference.