Chai is a mysterious character who is a recurring threat to Ryo Hazuki. He attempts to steal the Phoenix Mirror from Ryo so he can deliver it to Lan Di to prove his worth. He also works with Terry Ryan to kidnap Nozomi Harasaki, the main love interest in Shenmue. Chai's appearance is similar to Gollum from the Lord of the Rings, and he exhibits speed and agility that is beyond normal human levels. The reason for his monstrous appearance and heightened abilities is never explained. This is odd as the rest of the game is grounded in reality.
At the end of Shenmue, Ryo defeats Chai and knocks him into Yokosuka harbor before boarding a boat to Hong Kong the next day. Although Chai does not appear in Shenmue II, it is revealed (in an unlockable comic in the Xbox version) that Chai survived the fight and boarded the boat in an attempt to stop Ryo. During the opening of Shenmue II, Ryo is thanked by a mother from the boat for helping her daughter. Without reading the unlockable comic, it would be unclear to the player that this refers to Chai boarding the boat.
It is unclear whether Chai survived the boat fight or not; he is not seen or referred to again in Shenmue II and the Shenmue franchise has been dormant for years with little chance of being completed.