2. Depends on how you want to control it. If you want complete control, then you can just make a single large faction and roleplay the confederation aspect while dealing with the stability issues, or you could have the neighbouring NPC states be part of your confederation, but you'll have little control over them. Entirely up to you!
3. I was thinking the centre of the eastern continent, above the skinny bit along the river, but haven't decided for sure.
With regards to Iron and Blood, it appears we have competing claims on Chihli. Would you be amenable to replacing Chihli in your claim with Canton (or some other province like Taiwan within the sinic sphere)?