The muscle head fights Ryo in two different locations: outside Shenhua's house and here
His target seems to be Shenhua, as we see Ryo guarding her as muscly approaches her outside Shenhua's house. From this, I'm going to assume he's a chiyoumen member, assigned to capture Shenhua. Bailu village has a population of about 50 people and the community is pretty close-knit. Muscly being a petty thug from the village doesn't really make much sense. Seems to be that Shenhua already has a target on her head and this guy was tasked with capturing her.
I've always felt that Shenhua will be separated from Ryo (captured) at some point in the game and the quest of Shenmue 3 will largely focus on Ryo saving her.
Of course, it could just be a tech demo as Yokosuka has pointed out. I remember muscly being showcased in a Kickstarter update a few months back and there was some concept art for him and he was described as a "new character" though, so maybe he is relevant to the story.