The latest Shenmue 3 Kickstarter update features an abridged version of creator Yu Suzuki's address at the CHUAPPX Expo in China, in which he explains where the new game stands in the overall Shenmue narrative. Fair warning: It's a little confusing.

"Shenmue 1 comprised of Chapter 1, and Shenmue 2 focused mainly on Chapter 2, but also incorporated parts of Chapters 4 and 5," he explained. "The composition for Shenmue 3 has been finalized, and will begin with Chapter 5 as the continuation of Shenmue 2, to move on past Chapter 6. The story has been written to align with this structure; and the planning for the game elements that will go along with the story have been completed."

Suzuki has previously said that the full Shenmue story will cover 11 chapters, so possibly the third chapter—which appears to be missing from the equation, since Shenmue 2 apparently skipped it—will be covered in a currently hypothetical future edition.

In any event, with the budget locked down and a "detailed work flow" produced, Suzuki said the team has now begun "baseline research work with UE4 [Unreal Engine 4]." Once that's done, it will move on to the game design document and test-driven development processes, after which, "actual production will begin."

"The basic systems have been put in place and we are currently testing the Destruction (when objects break) and High Ground (environmental interactivity) effects," Suzuki said. "Unlike the development from 15 years earlier, we have assets already available to us and we are in an era where we can create prototypes even without a programmer."

The update includes three images from the prototype laid over screens from Shenmue 2, one of which hints at the return of a well-known character from the original game. There's also a poll asking backers if rewards that were offered as Kickstarter exclusives should also be extended to Paypal supporters. "Keeping our promise to you is very important to us," it says. "But at the same time, the PayPal site was set up precisely because fans could not back the Kickstarter and they feel they should not be penalized for that."

A clip of the prototype being revealed for the first time at CHUAPPX, posted to YouTube by Shenmue Dojo, can be seen below.

Thanks, Eurogamer.