When you play the second story, Temple of Doom. The very first level "Showdown in Shanghai" you will fight Lao Che.
After completing the level, go back to the Museum and enter the library.
If you don't know where the library is, it's behind you when you look at the different maps..
There will be 6 doors, 3 on each side. The closest one to the map atrium is the library.
In there you can purchase characters, buy Lao Che and either do a mission or wander about round the Museum.
He should turn up somewhere, he's wearing black clothes, and then just smash Indiana with him..