I can't remember how much this has been discussed, but I think it's worth keeping in mind this was a Chinese co-production, so that probably made them pretty paranoid about making the true villain Chinese. Even if they didn't want to go the full comic book version, it probably made them pretty nervous making him Chinese at all.
Frankly, in this case, this didn't even have to be the reason. I haven't read the comics, but from what I know, he seems to be a Yellow Peril stereotype; and in the movie, he was a complete stereotype of the Middle-Eastern Bin Laden-type terrorist that most people have in their heads today (or some weird mishmash of cliches that Western people have about Asia). It was a smart thing for the movie to update the racist stereotype before subverting it. I called the Mandarin twist early on, but that didn't mean it was less satisfying when it happened. Sometimes guessing a twist just makes you want it to happen because it makes sense and makes the story better. I figured that the Ben Kingsley character would be just someone posing, since this franchise has so far been too smart to play such a cliche straight. (Plus, his theatrical intonation and odd unidentifiable accent that seemed like a British person trying to sound "exotic" tipped me off. Ben Kingsley is also too good an actor to not be doing that on purpose.)
I also loved what they did with Pepper; I was scared that they were going to really make her the typical damsel in distress (the theatrical poster certainly looked that way), and was pleasantly surprised with what they actually did.
I loved so many things about the movie. They did a lot of clever things, particularly with Tony's development, in everything from his interactions with the kid (where they also undercut the potential cheesy sentimentality) to his interaction with his biggest fan (a contrast to how he treated Pierce's character in the past) to the way he saved the people in the air. It's great how they subverted superhero cliches, as with the "we can't save them both!" dilemma, which would no doubt be played out for all it's worth in some other superhero movie. Also, touches like Happy being a Downtown Abbey fan were great.