We investigated whether preschoolers with poor phonological awareness (PA) skills had impaired cortical basis for detecting speech feature, and whether speech perception influences future literacy outcomes in preschoolers. We recorded ERP responses to speech in 52 Chinese preschoolers. The results showed that the poor PA group processed speech changes differentially compared to control group in mismatch negativity (MMN) and late discriminative negativity (LDN). Furthermore, speech perception in kindergarten could predict literacy outcomes after literacy acquisition. These suggest that impairment in detecting speech features occurs before formal reading instruction, and that speech perception plays an important role in reading development.