Abstract: This article first introduces the background of principle of "comply or explain", then points out that this principle leaves corporation the flexibility to cope with the non-standard cases,and allows satisfactorily for the evolution of corporate structures in response to market practices.In contrast with the default rules in the written corporate law, this principle helps market to make an accurate price on the terms of corporate governance, but it must be supported by shareholder activism and market mechanism.In order to enhance the level of corporate governance of listed companies,this principle should be adopted by China.