This paper exploits China’s first default of state-owned enterprises to study the implicit government guarantee’s effect on SOEs’ trade credit financing. It finds that SOEs increase trade credit by 2.3% of total liabilities, on average, relative to non-SOEs after the first SOE default in China’s bond markets in 2015. The additional reliance on suppliers’ credit is more prominent among SOEs with higher information opacity. It is consistent with the literature where trade credit advantage lies in the suppliers’ superior information, as they can observe their clients through daily transactions. The current paper also finds that trade credits positively affect SOEs when IGG weakens. Overall, the results suggest that the reduction in IGG significantly affects Chinese firms’ financing decisions, highlighting the trade credit advantage against the backdrop of imperfect market institutions.