This conceptual paper focuses on innovation performance of SMEs in China and aims to exploring the factors that affect the innovation performance of SMEs and contribute to the innovation performance of Chinese SMEs. It examines the impact of IS (information system) competence on SME innovation performance, and the role of dynamic capability as a mediating factor. This research is great significant because it investigated the factors that affect the innovation performance of Chinese SMEs in manufacturing industry, and it will put forward valuable suggestions for the development of Chinese SMEs in manufacturing industry.