The general theme of Shenmue II as you went on, to me at least, was that the story became much grander in scale and much more important than a simple revenge plot to kill Lan Di. The quest to find Lan Di and exact revenge still motivated Ryo, but by the time you meet Shenhua, you realize that Ryo is part of something much bigger and that he is fulfilling his destiny or fate by going on this journey. I believe that the meeting with Lan Di will happen maybe halfway or 3/4ths through the game and will be presented at first as the final battle between Lan Di and Ryo, but the way they are sitting tells me that Lan Di will likely tell Ryo something huge-- as someone else said, something about Iwao's past that causes Ryo to have conflicted feelings about his quest or something about the mirrors/Chi You Men that is so important or grave that it requires Ryo to keep on this journey outside of fighting Lan Di. Like others, I also believe that Lan Di will either escape alive or nearly kill Ryo but spare his life, no way that this is a fight you can win.