create a layer above the picture and look at the shadows in the flag. Use a paintbrush to trace them (use medium grey). You don't have to be too precise since you're going to then gausian blur them. in another layer, Trace the highlights the same way in white.
since this is the chinese flag, trace the flag's contours on another layer using the same grey as the red stripes on the US flag in that picture to make the field. You would then fiddle around with the noise filter to so that it doesn't look too flat.
Simply take the stars from the chinese flag (you can find a picture of it on wikipedia) and put them on a layer above the play field one. Use the canton to align the stars and erase anything that wouldn't show due to a fold
now you should have five layers, from bottom to top: original picture, chinese flag field, stars, highlights & shadows. Change the highlights layer property to "lighten" and the shadow layer to "darken". change the opacity value of each until they look about right.
