Yeah the chinese federation stuff is a little confusing. Its all super political.
I think the simple explanation is Lelouch geassed that one guy, who let them make the USJ. The long hair dude figured out something was sus, and killed the dude Lelouch geassed as a traitor. But apparently he had wanted to get rid of him for a long time, so he has zero to "thank" for giving him a reason to. Seems like the guy is generally interested in Zero, and is going to try and play both sides for his own reasons and for the benefit of the Chinese federation. Thats why he said "if zero shows up you can do as please", because otherwise zero wouldn't be interesting/of value