In a composed performance, the American secured the highest short program score of the season with 110.38 points.
His score was just 0.15 shy of Hanyu's world record and the Japanese 24-year-old was some way behind here with a score of 97.43, while Frenchman Kevin Aymoz sits third after a score of 96.71.
"I'm pretty satisfied," Chen said. "I'm happy with the score. I'm glad I was able to lay down the jumps.
"Perfection is something that I don't think anyone can really obtain. But I'm happy with the Lutz.
"The second two jumps were a little shaky. I would definitely like to make those a little lighter, since I know I'm capable of doing that. And the program I think I can definitely start feeling the music better.
"Overall though, I'm pretty satisfied with the program and I'll sit down and watch it and see what I can improve on."
Elsewhere, the pairs competition is intriguingly poised after just over two points separated the top three in the short program.
Chinese world champion duo Sui Wenjing and Han Cong scored 77.50 points to take a narrow lead ahead of Russia's Aleksandra Boikova and Dmitrii Kozlovskii with 76.65, and compatriots Daria Pavliuchenko and Denis Khodykin who registered 75.16.