Stephen Totilo shared his insights about why he thinks it could be set in New York or possibly China over at Kotaku, but I feel like the latter is the likelier option. It beats the theory that it will be set in Egypt, at least.
There are plenty of hints why Assassin's Creed III could be set in China, but let's look at some reasons across three categories: story, gameplay, and marketing.
The most obvious reason lies with Embers. This animated short features a young Chinese Assassin called Shao Jun, who travels to Europe to learn from the now retired Ezio what it truly means to be an Assassin and how to use that wisdom to liberate her people. While in Europe she is attacked by a number of agents sent by the evil Emperor Jiajing, obviously a "Templar" because he is evil -- Templars merely being the public face for the Order that hides behind them. This is a pretty big hint, but by itself it's not necessarily reason enough to think the next big title will be set in China.
However, Jiajing's agents do look like they were created using the concepts for typical enemies in an Assassin's Creed game. You can easily see them being the kind of agile, spear-wielding, and heavy guards that diversify the combat. Then again, these are enemies used in a fight scene so of course they'd have different attacks to make allow for a more varied choreography and to make it more fun to watch.
Let's assume for a moment that Shao Jun returns to China and tries to spread the teachings of her European master to her Asian brothers and sisters, which "could take a long time" as she says herself. She arrives in Europe sometime in 1523 or 1524, since her mentor dies in 1524 and she leaves shortly before that. Perhaps she spends a year to get back to her Brotherhood and then spends a decade or so sharing her newfound wisdom with the other Assassins.
Why not confront the Emperor directly? Well, history tells us he apparently barely survived an assassination attempt in 1542 which seems to indicate they waited a while. Shao Jun was a former concubine who was freed by Assassins once the previous Emperor died, and Emperor Jiajing's assassation attempt came at the hands of his concubines. Shao Jun herself (born in 1505) would be 37 in 1542. That's a bit on the old side to have mainstream appeal, but then again Ezio was around this age in Brotherhood and even older in Revelations. A son or daughter would be too young to be an Assassin at that time but since we've been waiting for a female protagonist for a while now, Shao Jun or any Assassin under her mentorship could be the new main character as long as she shares DNA with Desmond.
After the failed assassination on his life, Emperor Jiajing is said to have ignored the rule of his empire in favor of devoting himself to Taoism -- building three new Taoist temples and expanding the existing Temple of Heaven in the process. First of all, what better place to store First Civilization artifacts beneath? Second, the whole Taoist thing could be used to shape it as a Templar tool. This is a bit of a stretch, but the Taoist tenets of reverences for "immortal ancestors" could have come from the Those Who Came Before holograms, just like the relationship between the Earthly and the Cosmic can be explained by the quest for the Pieces of Eden to protect against the Sun's cosmic radiation assault in 2012. Some other major aspects of Taosim do not necessarily fit the Templar mindset, although the evil conspirators do like to hide in the shadows and manipulate affairs more than they go out and openly oppose or assassinate people. Again, a pretty big stretch but you could twist some parts of Taoism into a Templar tool if you wanted to do it in a videogame.
A bit more tied to the games themselves is the fact that Revelations shows that Niccolò Polo and his brother Maffeo were Assassins. The old Altaïr hands Niccolò his Codex and the Italian jokes about how his son Marco is a bit too young (3 years old) to go on adventures himself. Of course Niccolò's son Marco Polo went all the way to China later on, with or without the knowledge of the Codex. Which brings us to the Mongols. Altaïr, his son Darim, and the Mongol Assassin Qulan Gal went off to stop Genghis Khan from conquering the world with his Piece of Eden in 1227. Sure, the Khan's grandson Hulagu ended up attacking Masyaf 30 years later, but it's unlikely that all Mongols were Templars.
The Mongols raided China during Jiajing's rule in 1548, possibly under Assassin control by now, making it as far as Beijing and the Imperial Tombs -- another great place to hide a First Civilization artifact. This is where it gets messy, though. Hulagu Khan wouldn't have attacked Masyaf in 1257 if he was an Assassin. However, it was not Hulagu but Kublai Khan who ended up becoming the next Great Khan and founded the Yuan Dynasty in China. It is this Kublai Khan who met with Marco Polo after the death of Hulagu, sometime during the 1270s.
If Marco Polo brought the teaching of the Assassins to the Mongols, it would stand to reason that there would be some Mongol Assassin Brotherhoods in 1548 when the Mongols started to raid Ming Dynasty China. Kublai Khan also converted to Buddhism, the very religion/ideology that Emperor Jiajing tried to replace with Daoism in the China under his rule. I suppose you could try to force the state of nothingness celebrated by Buddhism info the Assassin's Creed of "Nothing is true; everything is permitted," but that would be stretching the Buddhist-Daoist relationship really far to make it work with the Assassin/Templar conflict.
As for Desmond, the ending of Revelations strongly hints at the New York state area being the location of the real world events in Assassin's Creed III. That doesn't mean he would do much there other than live inside the Animus and perhaps traverse the hidden Grand Temple, much like he did at the present-day Colosseum site in Brotherhood; there's not much else to do in upstate New York if you ask me. Perhaps the Assassin cell encounters a problem accessing the hidden First Civilization ruins and needs to find a way to open them through the memories of Shao Jun, who maybe tried to access a similar Grand Temple in Beijing.
A lingering question would be "How does Shao Jun share Altaïr and Desmond's genes?" Darim could've just sexed some Mongol girl somewhere, or perhaps his offspring went with Marco Polo on his travels to the East; who knows? I'm sure Ubisoft can make that part of it work if they want to, since filling in the gaps is the easy part. However they do it, the setting of China and Mongolia allows for plenty of history that works within the universe of Assassin's Creed, continuing the story from Ezio to Shao Jun to what could later be games set during the French or American Revolutions. (That Phrygian Cap glyph from Brotherhood's ending has to fit in somewhere.) It's clear Ubisoft is not just going to end the franchise once the year 2012 has come and gone, so you might as well stretch the storyline a little and cover history with a slower pace, right?
With all the far-fetched story theorizing done with, let's look at the gameplay side of things. Like I mentioned before, the Chinese "Templar" agents from Embers already look like they came out of a game . The Janissaries in Revelations are overly powerful opponents with ranged attacks, and the big guy in Embers looks like a similar type of unit with a hand cannon. It would also allow the many Ubisoft studios to stick to the traditional melee combat in China with the new addition of bombs -- and perhaps with more of them -- without drastically altering the gameplay in the way an 18th century setting would require.
Assassin's Creed and Assassin's Creed II were set in multiple locations, which helped to give it a sense of grand adventure and made it less repetitive to traverse the same place over and over again. Rome in Brotherhood was varied enough to not become too repetitive, but you already felt the story being a tiny bit less adventurous as the one that focused on Young Ezio's coming of age in Assassin's Creed II. With Revelations showing that a boring city can make all the difference, it makes sense for Assassin's Creed III to either have one big new type of city we haven't seen before, or multiple locations once again.
Beijing and the Mongol regions would make for a pretty good setting. You can bring back the horse, add horse archery to the gameplay whenever there are no buildings to climb, and Beijing is perfect for platforming. Since Emperor Jiajing was building his three major Daoist temples and expanded another temple, you already have four big landmarks to explore. Add to that the Imperial Tombs the Mongols reached, the Forbidden City as a whole, and all the other monuments you built in Emperor: Rise of the Middle Kingdom and there is plenty to explore.
Let's face it: Assassin's Creed III needs to breathe fresh life into the franchise. We've seen the old Middle East in movies like Kingdom of Heaven and we've seen ancient Rome and Renaissance Italy in plenty of other movies and TV series. Constantinople is foreign enough to be fresh, but it's still a mix of Byzantine and Ottoman culture that is somewhat close to the Roman era. All of these settings are familiar enough to Western popular culture to not feel too distinct and hard to identify with. China on the other hand is completely different. It offers a different architectural style to make climbing temples fun again, and not everyone knows that much about China from movies and the like, other than that they had some great moves when it came to melee combat.
Which brings us to marketing. Being the new economic powerhouse, there are two good reasons to set the next big game in China. There is the mass market in China itself that you can sell the PC version to for one, if it won't be banned. For the West, China has somehow become a somewhat scary Soviet Union replacement country that threatens take over the world. This has lead to a surge in the mass audience interest in Chinese culture and its strangely alien history no-one ever learned anything about in school.
This makes it a great setting to market to the masses. You can capitalize on the growing and slightly xenophobic interest of the West and simultaneously set the game's style apart from the 2012's holiday season with its inevitable modern warfare FPS or sequel-that-looks-a-lot-like-the-previous-one games. This helps to raise the all-important awareness among both the core gamer and mainstream audiences that might go, "That's cool, I haven't played a game set in 16th century China before."
By setting it in China, you can also use Asian Assassin girls to promote your game. Cute Asians in skimpy and geeky outfits are an unfair weapon to wield against what can be considered to be a gaping weak spot for the average Western male adolescent gamer's mental state, sure, but you can count on cosplay images like that to spread like wildfire among the male 18-34 audience; and spreading your brand's awareness is what marketing is about, whether it's in good taste or not.
Of course this is all a lot of hypothesizing and trying to make history fit within the Assassin's Creed universe. I can only hope Assassin's Creed III will be set in China because I can it work really well, but it might as well be the setting for a PlayStation Vita game or some other minor game or comic book. It surely beats upstate New York or Egypt as a setting.
It could just be that Embers is only there to show Ezio's final days and that his knowledge is passed on to the rest of the world, his fire being rekindled by others so to speak. All the unnecessary mentions of the Mongols and now this out-of-the-blue character that even gets her own page in the Assassin's Creed encyclopedia would be a big red herring if they won't have anything to do with the next title, though.
Do you like theorizing and grasping at straws? Go pick my theory apart in the comments!
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