This paper explored 3 to 6 year old Chinese children's comprehension of a picture storybook, 'The Very Hungry Caterpillar'. The results show: (1) Chinese children's understanding of images, actions and characters' states improves with age; (2) Children develop their understanding of images first, followed by actions and then characters' states; (3) It is easier for children to understand images prominent in pictures than those not prominent in pictures or containing culture-specific information with which children are not familiar, actions represented directly through relationship of different images than those actions which require making connection with preceding and following pictures, and characters' states represented by visible information such as size and colour than those less visible or age-appropriate.