The model for YC startups is that most need to raise outside capital after YC. Part of their value proposition is being able to create a market of follow-on investors so their startups don't get totally shafted in those deals. That requires being in areas where there are enough investors to create a liquid market in fundraising rounds after YC.

China is one such area, and places like NYC or Boston could also work (YC used to be in Boston before PG & JL had kids). Those don't help much with the cost-of-living issue, though.