In this study, we examined the relationship between phonological awareness (PA), morphological awareness (MA), and character reading in Chinese kindergarten children. One hundred and twenty children were assessed in each of their three years at the kindergarten, with 12-month intervals in between. Using cross-lagged panel modeling, we found that: (1) from Time 1 to Time 2, character reading predicted PA and MA, and PA negatively predicted illiteracy; (2) from Time 2 to Time 3, MA predicted PA and character reading; (3) significant autoregressive effects were found in all three main variables at the two time intervals. The results indicated the benefits of reading experience to the development of oral language skills and the pivotal role of MA in both reading and oral language skills in Chinese early readers.