The relationships between phoneme categorisation, phonological processing, and reading performance were examined in Chinese-English speaking children in an English-speaking environment. Second language (L2, i.e., English) phonological processing but not phoneme categorisation was related to L2 reading. First language (L1) oral language skills were related to Chinese reading with L1 phonological processing being related to the Chinese reading task with a strong phonological component (pseudocharacter reading). L1 phoneme categorisation skill was not strongly related to L1 reading. These findings suggest that phonological processing is related to reading tasks with heavy phonological demands, such as reading in an alphabetic orthography or pseudocharacter reading in a nonalphabetic orthography. Exposure to L1 reading might influence processes used by Chinese-speaking children in an English-speaking environment.