@regularkid:
Its actually really simple: China was not a modern, industrialized country at the time of the war. This is not “derogatory.” This is a fact. What you characterize as a “wholesale rewriting of the rulebook,” is actually already part and parcel of the existing rules. . .since China already cannot build factories. Making this restriction apply to all powers that occupy China would make the rules more uniform, not less. . . and it would also make plenty of sense from both a historic and gameplay perspective.
Just my 2 cents, man
Even though your (and the game’s) characterization of China as disorganized and pre-industrial is accurate, the rules are pretty clear in that China cannot build Industrial Complexes (anywhere) and if they capture one of their territories with a Industrial Complex it is simply removed. No issues.
Re-formatting the rule so that the Axis cannot build factories there either is rather shortsighted in my opinion. It is convenient in reducing the threat of a China crush by Japan, but does so artificially by removing the Japanese factory build option entirely from the table. Historically, China was not industrialized, but Japan was and brought a good deal of it to China. Manchuria in particular, as an established puppet state, became a large industrial production center for Japan in the 1920s and remained so throughout the war (https://en.wikipedia.org/wiki/Economy_of_Manchukuo#Industry).
In A&A G40, the Manchukuo/Manchuria territory is noted as being Chinese, but under Japanese occupation to start the game. In my opinion, Japan should probably have a minor factory there to begin with, but OOB that is not so. Taking away Japan’s ability to build one there has no historical basis. There is likewise no reason to prevent Japan from being able to build Industrial Complexes in other Chinese territories either. If you were to except Manchuria from your proposed rule, on the above mentioned historical grounds, what is the real difference between it and other Chinese territories? Especially the others under Japanese control to begin the game. There really isn’t any.
The rule you suggest is impeccably simple, but it is historically unfounded and completely removes a viable option for the Japanese player, boxing him in just a bit more. Personally, I think there are other ways to address the China crush and cross-Asia push to Moscow.