Based on a large‐scale household survey conducted in 2007, this article reports on poverty concentration and determinants in China’s low‐income neighbourhoods and social groups. Three types of neighbourhood are recognized: dilapidated inner‐city neighbourhoods, declining workers’ villages and urban villages. Respondents are grouped into four categories: working, laid‐off/unemployed and retired urban residents, together with rural migrants. We first measure poverty concentration across different types of neighbourhood and different groups. The highest concentrations are found in dilapidated inner‐city neighbourhoods and among the laid‐off/unemployed. Mismatches are found between actual hardships, sense of deprivation and distribution of social welfare provision. Second, we examine poverty determinants. Variations in institutional protection and market remuneration are becoming equally important in predicting poverty generation, but are differently associated with it in the different neighbourhoods and groups. As China’s urban economy is increasingly shaped by markets, the mechanism of market remuneration is becoming a more important determinant of poverty patterns, especially for people who are excluded from state institutions, notably laid‐off workers and rural migrants.