Although manufactured goods have come to make up the bulk of China's fast expanding exports, the country's competitiveness still lies in low-value-added products. Reflecting this, Chinese exports do not directly compete with Japanese exports; rather, they complement each other. China's export structure also lags behind Asia's newly industrializing economies (NIEs) and major members of the Association of Southeast Asian Nations (ASEAN). Based on a comparison of the trade structures among Asian nations, we find that they are broadly in line with their respective levels of economic development. In short, there is no evidence showing that the flying-geese formation has been disrupted by the emergence of China. Even in China's fast-growing IT-product sector, the country's export competitiveness still lags far behind not only Japan, but also other Asian countries. There is a clear division of labor between Japan and China, with the former specializing in high-value-added products and the latter in low-value-added products. There is little overlap, especially in the high-value-added categories. In the new economy, human capital is the single most important asset. It is unrealistic to expect the Chinese economy to leapfrog because China is unlikely to greatly improve the educational level of the entire nation in a short period. Instead, economic development can only be a step-by-step process.
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