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FEC Articles Express:FEC 2019 December Issue


Frontiers of Economics in China

Volume 14, Issue 4 (December 2019)


Qihong Liu, Jie Shuai 

Multi-Dimensional Product Differentiation 


Michael Peng, Dongkai Jiang, Yingjie Wang

Forecasting Chinese Corporate Bond Defaults: Comparative Study of Market- vs. Accounting- Based Models    


Qing Shi, Chen Wang, Wei Wang         

Liquidity Shock, Credit Constraint and the Development of Private versus

State-Owned Enterprises       


Hiroya Akiba  

Sustainability of Monetary-cum-Exchange Rate Policy in China


Lixue Wu, Cheng Liu  

Project Matching and Overcapacity in China


Multi-Dimensional Product Differentiation

Qihong Liu 

Department of Economics, University of Oklahoma

Jie Shuai

Wenlan School of Business, Zhongnan University of Economics and Law

Abstract: We analyze product differentiation in a multi-dimensional model with non-uniform consumer distribution. The level of product differentiation is measured by both unit transport costs and firms’ locations. Our analysis concerns both measures. First, fixing firms’ locations, we show that equilibrium prices can increase or decrease with unit transport costs. The overall result depends on the interplay of a shifting effect and a rotating effect—the latter exists only in multi-dimensional models. Second, fixing unit transport costs, we find that under non-uniform distribution, there may exist no equilibrium where firms maximize differentiation on one dimension but minimize differentiation on other dimensions. Instead, there may exist an equilibrium where firms choose intermediate locations, contrary to common findings in existing studies which assume uniform distribution.



Forecasting Chinese Corporate Bond Defaults: Comparative Study of Market- vs. Accounting-Based Models

Michael Peng

Boston Consulting Group

Dongkai Jiang

Witzcredit Risk Analysis

Yingjie Wang


Abstract: This paper provides the first empirical study on bond defaults in the Chinese market. It overcomes the deficiencies of existing methods, which suffer from lack of actual default data for back testing. With newly available bond default data, we analyze the roles of market variables against accounting variables under various models. While we find that Merton’s market-based structural model and KMV’s Distance to Default exhibit languid discriminating power compared with hazard models that have carefully constructed predictors, other market variables carry significant information about bond defaults and could help improve on models with only the accounting variables. This implies that the collective intelligence of the market could somehow mitigate the distortion caused by misreported accounting information. Further, model performance can be significantly improved by adding predicting variables that link an individual financial measure to the broader market performance, such as the relative margin—a business environment proxy introduced in this study. We not only shed light on the default behavior of the Chinese bond market, but also provide a promising approach to improve the variable selection process.


Journal Profile

Frontiers of Economics in China (FEC) is a quarterly peer-reviewed journal edited by Institute for Advanced Research, Shanghai University of Finance and Economics, and published by Higher Education Press.  Established in 2006 and with Guoqiang Tian as the Editor, the journal has a strong Editorial Advisory Board (with several Nobel Prize winners as board members), as well as a dedicated Co-Editors’ team and an Editorial Board comprised of leading overseas and domestic Chinese economists.

Issued quarterly and distributed worldwide, the FEC is available both online and in hard-copy.  With more than 600 institutional subscribers worldwide and indexed in more than 10 databases including EBSCO-BSU, EconLit, ESCI, Gale, ProQuest, RePEc and SCOPUS, the journal is ranked as one of “The Highest International Impact Academic Journals of China” in 2019.

The FEC welcomes submissions of theoretical and empirical papers from all fields of economics, particularly those with an emphasis on the Chinese economy and other emerging, developing or transition economies.  While the journal is primarily interested in original research papers, it also welcomes submissions of opinion articles, literature surveys, and book reviews. 

Based on data from the WOS website, scholars from about 500 institutions (2/3 of which are outside China), including NBER, WHO, Harvard University, MIT, UC-Berkeley, Oxford University, National University of Singapore, Seoul National University, University of Bonn, University of Tokyo, Peking University and Tsinghua University, have cited articles published in FEC.  Among the journals that have cited FEC articles are American Economic Review, Science, International Economic Review, China Economic Review, Journal of Comparative Economics, Journal of Economic History, Journal of Economics & Management Strategy, and Journal of Population Economics.


Editor: Guoqiang Tian, Shanghai University of Finance and Economics

Executive Editor: Zhiqi Chen, Carleton University


Chunrong Ai, University of Florida

Kevin X.D. Huang, Vanderbilt University

Neng Wang, Columbia University

Quan Wen, University of Washington


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