Liquidity strains are building for some of Shandong's state-owned firms. The province is also in the middle of an economic transformation, bringing more commercial focus to the entities it controls. We believe this leads investors to an inevitable question: can Shandong's weak SOEs reform before they default? This is not an academic matter. A handful of state-owned enterprises (SOEs) in Shandong have already missed payments on a series of nonstandard debt. These are typically linked to lower-tier local governments with limited resources to bail out their struggling enterprises. While no entity has defaulted on a public bond, many are increasingly reliant on short-term (tenors of less than 12 months) debt amid falling cash flows. The Shandong government in 2018 initiated
