This study investigates and compares hi-tech SMEs in China and France showing the differences in innovation capabilities between the two countries. This empirical research is based on a comprehensive questionnaire. Sample firms are randomly selected from Shanghai in China and Rhône-Alpes in France. To control the exogenous industrial variance, sample firms in the two countries with the same proportion of industrial sectors are selected. The study concludes that the differences on innovation capabilities are significant through a quantitative analysis. Moreover, the innovation stages of hi-tech firms depend on some key factors, such as R&D expenditure, firm size, granted patents, profit intensity, new products etc., positively correlated with innovation capabilities. The finding indicates that, compared to their larger counterparts, the hi-tech SMEs have distinctive capabilities for innovation which are determined by their resource-constraints and their particular innovation strategy. Managers should consider these factors in formulating an effective innovation strategy. Simple involvement in innovative activities does not guarantee an improvement in innovation, only successful innovative activities make a difference.