Obviously, this is great for China. The victory over Japan at least sets back Japanese threats for quite some time, and is likely to suspend the grabbing of new leased and treaty ports (Qingdao, Port Arthur, Fort Bayard, Weihaiwei) and head off the Boxer rebellion (which led to the Tientsin concessions, etc.).
I wonder what the European powers would make of China's victory. They would not find it surprising. Might Wilhelm make a big stink about the "Yellow Peril" posed by *China* as opposed to Japan. Would the Russians be as aggressive with railway diplomacy or gain any special influence in Korea in the decade 1904-1905? Prior to the 1890s, the Russians had always assumed the Chinese were more formidable than the Japanese, and had had enough respect for the difficulties of fighting in that region that they backed off their occupation of the Ili valley.
Might the Russians never see as much opportunity in the Far East with a relatively stable China holding its own against Japan. Possibly this means a more continued European focus, aborts OTL's Austro-Russian 1897 agreement to put the Balkans "on ice" and leads to a high risk of a Austro-Russian tensions over say, Macedonia, setting off a European coalition war around the turn of the 20th century?
If not, does Britain consider coming out of isolation, but thinks of China, rather than Japan, as its best potential ally in Asia in the early 29th century? A forward bulwark of India?
As for effects on Japan, I think initially this defeat will curb Japanese enthusiasm. In the worst case, the Japanese are shut out of Korea and forced to pay an indemnity to get Chinese raids to stop (and to ransom troops on the mainland? Maybe to this generation of Japanese, that is not so grossly dishonorable as WWII era Japanese would have thought for troops to have been captured ).
However, I don't see this single defeat as likely to result in a continuous downward spiral for Japan like what happened to China. I believe that shortly before the Sino-Japanese war started, extraterritoriality had been repealed in Japan and a timeline had been set for granting tariff autonomy. I don't think European powers valued Japan so much as to covet special leases or new treaty ports in the Japanese home islands. (might Russia want the northern Kuriles back to open up the sea of Okhotsk?) So, Japan is still likely to have continued political sovereignty like Siam, only with higher technology and economic growth, even if it experiences no territorial growth (at least not until China stumbles on a later occasion.)
Your thoughts on this?