The social integration of migrants has become a major challenge for Chinese cities as many rural migrants still face discrimination from urban natives. Research suggests that intergroup social trust can improve cohesion and reduce stigmatisation. However, little is known about the trust level between migrants and locals and its underlying dynamics in urban China. Our study explores the trust between native Shanghai residents and rural migrants and how neighbourhood factors including residential diversity and neighbourhood poverty may play a role. We adopt a multilevel model to analyse the 1,420 questionnaire samples collected in 2013 from local and migrant residents in Shanghai. Our results show that people living in areas with more migrant residents also have higher intergroup social trust, which may indicate that exposure to more out‐group neighbours can remove preconceived stigmas and foster tolerance. In contrast, there is less intergroup trust in poor neighbourhoods although migrant residents are exceptions. We speculate that migrants are less affected by local poverty because they are less spatially bound to the locality and are thus less likely to compete with native residents over local resources. Our results differ from findings in multi‐ethnic societies where residential diversity causes distrust, but we believe this is a reasonable outcome considering that locals and migrants in urban China share more in common such as ethnicity, language, and national identity. © 2015 The Authors. Population, Space and Place published by John Wiley & Sons Ltd.