The real reason Mr. Han says what Master Li teaches isn't Kung FuMaster Li actually learned from Kreese's sensei but, since he's teaching to his fellow Chinese, he calls it "Kung Fu" instead of karate for marketing reasons. Mr. Han just happens to be somebody who can tell the difference and cares about it. Practically everybody else just dismisses it as a variation of Kung Fu.
Master Li's dojo will receive a life ban.The people organizing the tournament in China are more strict than those organizing the All-Valley Karate Tournament in California and issued the ban without the need for Master Li to team up with a Chinese Terry Silver. Cheng will try to lift the ban in the 2040's but will fail and then decide to come up with a different name for the dojo to get around it.