State-owned　enterprises　(SOEs)　play　critical　roles　in　China＇s　economy.　This　paper　employs　difference-in-differences　method　to　explore　the　corporate　governance　effect　of　state　asset　protection　based　on　China＇s　Law　on　State-owned　Assets　of　Enterprises.　The　study　finds　that　state　asset　protection　reduces　the　real　earnings　management　of　SOEs　by　increasing　their　corporate　governance　level.　This　policy　effect　occurs　mostly　in　firms　with　non-Big4　auditing,　lower　analyst　following　and　weaker　internal　control　quality.　This　paper　enriches　research　in　law　and　finance,　expands　the　literature　on　property　rights　theory,　and　provides　empirical　evidence　for　governments　to　complete　policies　to　clarify　ownership　in　the　future.