I do recall reading an official source that mentioned something along the lines of how Shenmue on the Saturn was one game, but after moving it over to Dreamcast they kept adding to Chapter 1 until it was fleshed out enough to be split off into its own game.
I’ll see if I can find a citation for that and keep you posted. But I swear it was something Suzuki himself stated.
Has been confirmed in lots of places over the years (including leftover assets on the game disks) but an immediate and recent source would be Ryan Payton on the Back in My Play podcast. All information directly from Yu Suzuki, just relayed to Ryan.
Also, when screenshots of Shenmue were first released in magazines/the web, most of the pics depicted content that would end up in Shenmue II (I'm sure Yu stated in some interview that the Yokosuka chapter was originally much shorter) - I specifically remember completing Shenmue 1 and being very confused about why I hadn't encountered a scene where Ryo was handcuffed to 'that guy with the bandana', nor met Xiuying
This question inspired me to do a bit of digging around to see when Yu Suzuki originally let on to the public that Shenmue would be released by chapter. The answer turns out to be at TGS '99 - quite late in the development process.