Thinking about the decline of morality in post-reform China, the author analyzes the development of virtuous governance based on moral education, and concludes that the reason why ancient rulers were so infatuated with it was the inhibitive function of public evaluation on moral transgressions in familiar neighborhoods. However, as China transforms into a dynamic and commercial society, and its people move from familiar neighborhoods to alienated communities in the cities, public evaluation is losing its power over moral transgressors. To prevent the collapse of the moral system, it is necessary to use rule by law to foster people’s sense of justice and rule-consciousness—not to simply hope for the appearance of more altruists. This is possible because law is the embodiment of moral principle, and because legal restraints and penalties can be internalized as habits. After a sense of justice and rule-consciousness has been established in people, we can again take up Confucian virtue education to nurture people’s sense of shame and dignity, and their humane and righteous mind. However, to stop the current chaos and corruption, it is urgent that we adopt rule by law and supplement it with moral education.