Motivated by theoretical debates and corpus-based evidence of lexical coinage in L2 learners’ production, this chapter examines whether lexical representation in Chinese relies on holistic whole-word storage or morphemic decomposition, and how these patterns differ across L1 and L2 populations. Using a repetition priming paradigm, the results support a dual-route account of Chinese morphological processing, showing that whole-word and morphemic representations coexist but are modulated by proficiency and morpheme boundness. Native speakers preferentially adopt economical whole-word representations, while L2 learners exhibit a developmental continuum from morpheme-based to whole-word reliance, with free morphemes facilitating decomposition more strongly than bound morphemes. These findings contribute to psycholinguistic theory by clarifying representational units in Chinese word processing and hold practical significance for L2 pedagogy, underscoring the need for stage-sensitive, balanced integration of morpheme-based and whole-word teaching approaches.