I get that you're telling him to ignore it and laugh along. Might a different strategy be useful? Just don't engage. If he must engage, can he do it in a way that shows just how stupid and insignificant the other kids are? The more quiet contempt, the better.

"You're short" could be answered by: -"Okay?" -silence, followed by "Oh, I heard you" - "Sure" - "Hey, we're insert activity, could you knock it off" - "Whatever"

This requires that he doesn't react. I get why he would react, the kids are being assholes. Maybe talking to him about why other kids bully, can help him find calm. No one bullies you because you're short, they bully you because they want to feel taller. Every time someone says something mean like that, it's because they're pathetic.

Lastly, the feasibility of this technique depends on your kids temperament and ability to self regulate. I sure as shit couldn't do this as a kid.