I only had time for a quick look, so my comments are just very general ones, in no particular order.
“Winning the Game: Nationalist China wins if all Communist Chinese units are eliminated. Communist China wins if they can control all Nationalist China mainland territories (not including Warlord territories).”
Comment: This solves the original concerns I’d raised, which were related to capitals. The new winning conditions are more straightforward and clear, which is a good thing. That being said, you may want to be a bit more explicit with each side’s goals, in order to provide guidance to the players, because the two goals are stated in different terms. As far as I can tell, each side’s basic goal is the destruction of the other side’s military forces, the only difference being that the Nationalists need to destroy the Communists completely, whereas the Communists only need to destroy the Nationalist forces in every mainland location. This is slightly unbalanced, so you may want to set up victory “gradations” (total victory, major victory, etc.) because a Communist victory in which the Nationalists are totally destroyed should count for more than one in which the Nationalists escape in large numbers to Taiwan (and/or Hainan Island, which isn’t part of mainland China).
“Nationalist Aligned Warlords”
Perhaps I’m not remembering correctly what I read in that Wikipedia article, but I think the warlord era was pretty much over by the 1930s. The Communist Revolution was in the late 1940s.
Peasant, not pheasant. Peasants are, in Communist terms, the rural proletariat. Pheasants are birds.
“Nationalist Defection: Every second turn, the Communist China player has the option to replace their purchase phase with Nationalist Defection.”
This is an interesting concept, and it actually brings into the game one of the political angles of the Communist Revolution.
“(Russia slowly moved out of Manchuria after WW2, allowing the Communists to move and control the land)”
The Soviets also, if I’m not mistaken, allowed the Communists to get hold of a lot of captured Japanese military hardware.