One can build a MINOR Industrial Complex on any territory they control so long as it is worth at least 2 IPC. It does not matter if the territory is green, red, grey, orange, tan or neutral as long as it is worth 2 IPC.
One can only build a MAJOR Industrial Complex on territories that are their own color. (Japan could build one on Manchuria, Germany in Romania, etc). Territories must be worth at least 3 IPC to support a major complex.
Stirling is building a minor complex in KSU, if I am reading correctly. KSU is worth 3 IPC and as this is Japan 1, it is certainly controlled by Japan. Therefore, it can support a minor complex.
Should China liberate KSU (or anyone else for that matter) the complex is destroyed and removed from the board. China is not permitted to own complexes and no allied nation can take temporary control of Chinese territories.