By measuring behavioural performance and event-related potentials (ERPs) this study investigated the extent to which Chinese school children's reading development is influenced by their skills in auditory, speech, and temporal processing. In Experiment 1, 102 normal school children's performance in pure tone temporal order judgment, tone frequency discrimination, temporal interval discrimination and composite tone pattern discrimination was measured. Results showed that children's auditory processing skills correlated significantly with their reading fluency, phonological awareness, word naming latency, and the number of Chinese characters learned. Regression analyses found that tone temporal order judgment, temporal interval discrimination and composite tone pattern discrimination could account for 32% of variance in phonological awareness. Controlling for the effect of phonological awareness, auditory processing measures still contributed significantly to variance in reading fluency and character naming. In Experiment 2, mismatch negativities (MMN) in event-related brain potentials were recorded from dyslexic children and the matched normal children, while these children listened passively to Chinese syllables and auditory stimuli composed of pure tones. The two groups of children did not differ in MMN to stimuli deviated in pure tone frequency and Chinese lexical tones. But dyslexic children showed smaller MMN to stimuli deviated in initial consonants or vowels of Chinese syllables and to stimuli deviated in temporal information of composite tone patterns. These results suggested that Chinese dyslexic children have deficits in auditory temporal processing as well as in linguistic processing and that auditory and temporal processing is possibly as important to reading development of children in a logographic writing system as in an alphabetic system. Copyright © 2005 John Wiley & Sons, Ltd.