The effect of government subsidies on innovation of small and medium-sized enterprises（SME）is still lack of empirical analysis. This paper estimates the impact of government subsidies on the innovation strategy and performance of SMEs. We use Listed SMEs as research samples and divide the government subsidies into R&D subsidies and non R&D subsidies. Following findings are obtained: first, R&D subsidies and non R&D subsidies significantly promote the R&D expenditure of SMEs, but the effect of R&D subsidies is significantly stronger; Second, R&D subsidies can promote the patent output of SMEs, mainly to significantly promote the number of invention patents of SMEs, while non R&D subsidies are more to promote other types of innovation; Third, from the perspective of innovation efficiency, R&D subsidies play a significant positive role in the technological progress of SMEs, but play a significant negative role in the pure technical efficiency of SMEs, while non R&D subsidies play a negative role in the technological progress, pure technical efficiency and total factor productivity. Heterogeneity analysis found that rent-seeking will distort the effect of Government R&D subsidies on the innovation; Government subsidies have a stronger incentive effect on non-high-tech SMEs; Government R&D subsidies have a better effect on the innovation activities of SMEs with better internal governance.