Ever since I beat Shenmue II, I never trusted Yuanda Zhu. First off, he just looks evil. And, if the Chi You Men came all the way to Hong Kong to get him, then used the Yellow Heads to find him, I don't think they would have just let him go after Ren kicked that guy and saved Zhu. It just sounds to me like a trap. Yuanda Zhu then finds out that Ryo has the Phoenix Mirror, because obviously Lan Di didn't know that Ryo had it or else he would have just came down and beat the living crap out of him. Yuanda Zhu just used Ryo to give him information.
Also, if he was just stuffed in some room in the Yellow Head building, how in the world would he have found out that Lan Di was headed to Guilin. Zhu knows he is, but how. Because this is all a plan. Now that Yuanda Zhu knows Ryo has the Phoenix Mirror, he sends him Guilin to meet his doom at the hands of Lan Di. Which is why I think Lan Di is waiting in the cave for you.
And, don't any of you find it strange that Master Chen and Yuanda Zhu stories about the mirrors are so different. Master Chen says the mirrors will ressurrect the Chi Yo monster on earth, while Yuanda Zhu says that they are merely a treasure map. Sounds to me like Zhu is hiding something, because I trust Master Chen a LOT more than Yuanda Zhu. The mirrors just have to be more than a treasure map, because you don't think Lan Di would go through all this trouble just to get rich? No, he has other plans I believe.
So, I think that all those years ago, it wasn't Iwao Hazuki that killed Sunming Zhao, but it was Yuanda Zhu. See, Sunming Zhao is becoming obsessed with the mirrors, he starts to plan them to use for evil. Iwao and Zhu then go to Zhao and demand the mirrors, warning him of their danger. Longsun Zhao watches in horror. But, one of Zhu's followers knocks out Longsun, while Zhu turns on Sunming Zhao and Iwao, because he wants the mirrors for himself. He manages to kill Zhao, but Iwao defeats him and takes the mirrors back to Japan. Yuanda Zhu is beaten and bruised, and he desperately wants the mirrors. He knows he could never defeat Iwao Hazuki, but he looks over at the young Longsun Zhao, and realizes that he could defeat Iwao. So, Zhu trains Longsun, constantly telling him of the cruel murder of his father at the hands of Iwao Hazuki, and also telling him of his need for revenge. When Longsun is old enough he tells him of the mirrors that Iwao stole from Sunming.
When his training is complete, Zhu takes Longsun to a remote mountain chain, (the one Shenhua has a painting of in her house, and she says no one ever returns from there) There, they meet a group of monks where Longsun is taught a powerful martial art no man has ever seen. Then, Longsun leaves, and joins the Chi You Men, eventually rising through the ranks and earning a spot in the Four Leaders, along with Ziming Hong, Niao-sun, and the Ten-Tei. Then, he finds Hazuki and kills him on Nov.29,1986.
But, Zhu is still working with Lan Di, and like Master Li from Jade Empire, he tricks Ryo into trusting him buy writing him a letter warning him of those who seek the mirror. Zhu knew Lan Di was coming for Iwao, so he wrote a letter that he never intended to reach him in time, but rather to get to Ryo, so he would come looking for Zhu. Then, when Ryo finds him, and is sent to Guilin, Zhu thinks his plan has worked to perfection, but he didn't anticipate Shenhua. And, I guess we'll have to wait for Shenmue III to see what happens.