This article analyses the emergence of labour camps in the CCP base area of Shandong province from 1942 to 1950. By using original archival material, it provides a detailed understanding of the concrete workings of the penal system in a specific region, thus giving flesh and bone to the more general story of the prison in China. It also shows that in response to military instability, organizational problems and scarce resources, the local CCP in Shandong abandoned the idea of using prisons (jiansuo) to confine convicts much earlier than the Yan'an authorities, moving towards a system of mobile labour teams and camps dispersed throughout the countryside which displayed many of the key hallmarks of the post-1949 laogai. Local authorities continued to place faith in a penal philosophy of reformation (ganhua) which was shared by nationalists and communists, but shifted the moral space where reformation should be carried out from the prison to the labour camp, thus introducing a major break in the history of confinement in 20th-century China.