Many studies on informal employment have identified significant differences in wages and other aspects between workers engaged in formal and informal employment in China. However, whether informal employment is the result of a segmented labour market or a competitive labour market remains unclear. In this study, we empirically examined this issue and found that the informal labour market in China is both a segmented and a competitive labour market, with nearly half of workers in informal employment entering involuntarily in 2006. However, entry barriers are not observed for 2010.