Western advisers and observers have hardly had a good track record in predicting the results of even European conflicts. Even as recently as 1920, for example, Western advisers were caught entirely by surprise by the Polish victory over the Soviets at Warsaw, and had little if any role in the Polish victory.

The reason why the West was surprised by Japan's victory was pretty straightforward: economically and militarily, China seemed to be much, much, much stronger than Japan. Aside from the massive population and wealth that China held compared to Japan, the European observers noted that the main Chinese naval force, the Beiyang Fleet, was composed of modern, European-built, heavy ships, including two pre-dreadnought battleships that outclassed anything in the Japanese naval arsenal. However, away from European eyes, there were many deficiencies in the Chinese military that showed its weakness when confronted with the modernized Japanese military.

a) The Beiyang Fleet, for all its grandeur, was essentially a vassal fiefdom subject to the Imperial Court. As such, the resources available to the fleet were not the total resources of the government but rather whatever the fleet itself could scrape up and/or beg from the government. Similarly, the government had little role in military affairs-for practical purposes, the Beiyang fleet was basically the government outsourcing its military needs, rather than developing an indigenous military. This led to problems when due to the poor logistics, the Chinese ships ran out of ammunition, and what ammunition they did have access to was unreliable. Even practice drills were insufficient as live ammunition was rarely (if ever) used in such practice due to the expense. The Japanese, on the other hand, had roughly centralized its military by this point through internal reforms and the navy was directly controlled by the ruling government through the Navy minister, thus giving them better access to resources.

b) Poor Coordination between branches of the military. While this was not entirely restricted to the Chinese (the Japanese had their fair share of poor coordination between the Army and Navy, which would intensify until the end of World War II), the problem with the Chinese military solution essentially meant that there was little incentive for China's multiple naval and army forces to cooperate at all. Of China's four fleets, only the Beiyang fleet (which was the biggest and most modern, to be sure) participated significantly in the war. The Japanese, on the other hand, were able to deploy almost all of their assets. The Westerners did not understand this, as most of their observers were stationed with the Beiyang fleet or the ground troops.

I can't talk as much about the Russian side of things, but I know similar factors were at play, along with a good dose of "Yellow Peril" thinking. One important thing to note is that the Russians were dependent on logistics via the Trans-Siberian railway, but at the time the railway was only a single track, meaning that any troop reinforcements arriving by train would need to wait for a returning train before they could board (essentially, instead of a two week trip, they would need to wait another two weeks for the train to come back, as there were only so many locomotives that Russia had available). This proved a major bottleneck for Russian supply, which is why the naval war's results were extremely important in the course of the war.

Another factor to note was that Japan received a great deal of war financing, such as from Jacob Schiff's Kuhn Loeb and Co. (which later became Lehman Brothers) that Russia did not have access to. This allowed Japan to fight a war much longer than it could have were it denied access to credit.