Despite the significant contribution of small and medium-size enterprises (SMEs) to China’s social and economic development, very little has been written about the effect that liability of foreignness (LoF) may have on the first stages of the international expansion of Chinese SMEs. To help fill this gap, this article analyses four main factors related to liability of foreignness affecting Chinese SMEs’ internationalization: limited knowledge of external markets; socio-cultural differences; unfamiliarity with foreign contexts and business practices; and limited contacts, reliable representatives, and control systems. The data was collected from 582 SMEs operating in China and then analysed using multivariate regressions. The findings show that the LoF-related barriers faced by Chinese SMEs may be different to those faced by companies operating in advanced economies; that the perception of LoF may grow at a different rate to that of the engagement in international activities, developing a bell-shaped relation; and that Chinese SMEs seem to have been successful in reducing some elements of LoF in their first stages of international expansion. The findings also show that the perceived LoF-related barriers for the international expansion of Chinese SMEs are mainly internal rather than external.