The wave spectrometer operated by the China–France Oceanography Satellite (CFOSAT) can provide global ocean wave observation data. Although a lot of work on calibration and verification has been carried out in the open oceans dominated by swells, the quality of the data in the relatively enclosed sea area with complex terrain still lacks sufficient examination. The objective of this study is to assess the performance of the significant wave height data of the CFOSAT in the South China Sea (SCS), a unique sea area characterized by semi-enclosed basin and multi-reef terrain, and to recognize the environmental factors affecting the data quality. Compared against the long-term observations from five mooring or buoy sites, we find that the data is well performed in the relatively open and deep areas of the SCS, with an average correlation coefficient as high as 0.87, and a low average root-mean-square error of 0.47 m. However, the combined effects of complex topography, monsoons, and swell proportion variation will affect the performance of data. In the southern deep areas, the waves may be affected by a large number of dotted reefs, leading to wave deformations and energy dissipation in different seasons. In the northern nearshore areas, waves tend to be sheltered by the land or distorted by the shallow topography effects. These processes make it difficult for the swell to fully develop as in the open oceans. The low proportion of swell is a disadvantage for the CFOSAT to correctly observe the wave data and may lead to possible errors. Our results emphasize the importance of more verification when applying the CFOSAT data in certain local seas, and the necessity to adjust the algorithm of inverting wave spectra according to specific environmental factors.