And there is "die Magd", ancient expression for a young woman and the grammatical gender is female, as well as "der Bube", ancient expression (it is still used more often, though) for a young man and grammatical gender is male.
Of both these words you can create the diminished versions "Bübchen" and "Mädchen" which both follow the aforementioned rule and are neutral.
Commonly, in Germany we say "Jungen und Mädchen" if we refer to children; but which words are chosen to be used are rarely a sensible decision.
My objection is not to the formulation of the rule, but to the existence of the rule―because where I'm from, a little girl is still a girl, grammatically too.
(Even though I agree in general that little kids make crappy men and women.)
Ah, then maybe to clarify further: This rule applies to virtually every word. A table is "der Tisch" (male), a small table is "das Tischchen" (neutral); a tree is "der Baum" (male), a small tree is "das Bäumchen" (neutral); a break is "die Pause" (female), a small break "das Päuschen" (neutral), etc. In theory you can take every word and diminish it by appending "-chen".
You could still argue, that the "-chen"-rule should be overwritten by an "obvious-grammatical-gender"-rule.
> Diminutive words are always neutral
And there is "die Magd", ancient expression for a young woman and the grammatical gender is female, as well as "der Bube", ancient expression (it is still used more often, though) for a young man and grammatical gender is male.
Of both these words you can create the diminished versions "Bübchen" and "Mädchen" which both follow the aforementioned rule and are neutral.
Commonly, in Germany we say "Jungen und Mädchen" if we refer to children; but which words are chosen to be used are rarely a sensible decision.