The performance contest model (PCM) has greatly promoted the transformation of China's development mode. This study investigates the effect of the PCM on local governance in China through an empirical study of the National Civilized City (NCC) program. The effect is examined with panel data of city development, household happiness, and municipal leadership. Our research has the following findings: (a) Civilized Cities exhibit significant improvements in public services that are closely related to national well‐being but have long been neglected such as education, science and technology, ecology, culture, and public health. (b) Civilized Cities exhibit a significant improvement in the subjective perceptions of citizens, where the happiness of local residents improved by approximately 3.9%. (c) The NCC program has a considerable effect on motivating local officials. Moreover, leaders of Civilized Cities have a significantly higher probability of being promoted, which increased by 13.1% and 15.9% in the second and third years after the award of the Civilized City title, respectively. This study contributes to a better understanding of China's local governance and improves the guidance and regulation of local developments.