Substantial security deposits are s natural deterrent for bad tenant behavior.

And the Chinese Government has a history of using their power, against Western Companies, such as market access, to reward and punish behavior.

She won't ever find anything because you would never do that (it's probably illegal) but she will stop her behavior believing she is being recorded and probably would move which is a shame, but you could probably recover from that.I'm just joking of course, or am I?

This will lock in any tenant as long as they want to stay,   unless they engage in egregious (and proveable) acts of nonpayment or behavior problems.   

It is very possible the previous landlord ripped him off--tenants aren't the only ones with bad behavior.

Monopolistic behavior is bad.

This seems like you've allowed her behavior over several months, which is why she thinks you're probably not going to do anything.

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Based on this behavior alone I would reject her. 

Appraisal of real estate relies on a basic "truth" (in quotes because there are no absolutes in appraisal, because there are no absolutes when it comes to buyer behavior) which is, people pay more for more and less for less.