Abstract: China's interest rate was determined by the regulatory and market liberalization, the interest rate determined by these two forces have different effects on different banks. Using the two-tier Stochastic Frontier Model proposed in umbhaka & Parmeter (2009), the influence of government regulation and interest rates liberalization on the net interest margin of commercial banks in China was respectively studied. It was showed that: (a) Government regulation and interest rate liberation had significant impacts on the decision making of the net interest margin of commercial banks, in which the influence of government regulation was stronger. (b) There were no big interest margins in Commercial banks, and on average, the net interest margin was 7.88% above its theoretical level. (c) Compared with national banks, local commercial banks gained a higher net surplus and was also more vulnerable to government regulation and interest rates liberalization. Also, it was confirmed in this study that the reform of interest rates liberalization had already taken some effects. Therefore, it’s suggested that: During the implementation of interest rates liberalization, differentiated treatments should be applied to banks of different categories.