Through a lot of field research on local governments, ANBOUND research team finds that besides financial resources and powers, government performance appraisal system is another very important aspect that can influence the relationship between the central and local governments. Once central government's performance appraisal system towards local governments is changed, the performance appraisal system of various levels of local governments will follow suite, and the targets and behaviors of local governments will also be changed. Thus, instead of simply criticizing the division of financial resources and powers of local governments, China should reform the performance appraisal system.