Well, the hard cold facts are that most video game developers are either Japanese or Western, and China doesn’t really have good relationships with many countries either in Asia or in the West.
While China has a great deal of interesting history, the only games set in China seem to be focused on the Three Kingdoms era. Outside of that, there seems to be very little interest from non Chinese about other time periods.
You see, unlike Japan, historically China has never really embraced the West. While Japan has been fascinated with the West since the Sengoku period and even more so during the Meiji Restoration, China has always kept the West at arm’s length and focused on themselves. China has had a reputation for being a self-centered country throughout its history, refusing to embrace or opening up to other powers, nor ever admitting that other countries could be more powerful than them, whereas Japan was forced to admit Western superiority during the opening of Japan in the 1850s and again after losing WWII in the 1940s.
This readiness to embrace Western thinking and ideals is what has kept Japan dominant in the video game scene and combined with Japan’s unique culture and history, kept it an interesting setting for foreign game developers. China, due to their perceived arrogance and unwillingness to embrace anything from the West, leads it to be rather isolated when it comes to video game development, also having the side effect of turning away foreigners from Chinese culture and history.
It’s notable that the most famous games set in China – Dynasty Warriors and Romance of the Three Kingdoms – are developed by Japanese companies.
Who knows though, maybe Chinese companies will come out with a good game that focuses on their history ^ but they’re fighting an uphill battle for sure.