Remember, too, that there were plenty of evil stereotypical oriental movie characters already in existence - Charlie Chan was created as a counter to characters such as Fu Manchu. The period between WW1 and WW2 was a time when both Chinese and Japanese were lumped together as a general "oriental" stereotype - often perceived as crafty, shifty, sneaky and untrustworthy. So in light of that stereotype being prevalent, and the world at the time being a place where few people ever left their own country to find out for themselves what other peoples were like, it is not surprising that the use of oriental actors was unsuccessful. Sad, but true. But keep in mind that most people in the period before WW2 relied exclusively on media for their impression of people from other countries and cultures. If they were bombarded with images of diminutive, bespectacled, inept Japanese pilots unable to navigate beyond the end of their own airfield, small wonder that nobody felt the Japanese were much of a military threat before the war began. So it's easy to accuse past generations of prejudice and bad stereotypes - but keep in mind that they didn't have the benefit of most, if not all, of the information we have at our fingertips today.   See 2 other replies

Monogram Pictures were not known for their extensive budgets. If anything, Mr. Wong was probably a response to Charlie Chan's popularity.
I paused to do a little research and the later Charlie Chan movies were also made by Monogram - for the most part they pre-dated the Wong movies. And not much of a coincidence that Keye Luke played both Number One Son in the Chan movies and was the past person to play Mr. Wong. Monogram probably tried to get Karloff a piece of the profitable Oriental Detective pie, but moviegoers were probably content with Charlie Chan and gave Mr. Wong the cold shoulder.
And while Charlie Chan was originally played in the movies by oriental actors, the series was not profitable until occidental actors took on the title role. So it wasn't so much the studios pushing the concept of non-oriental actors playing oriental roles - the decision was driven by the audience.   See 2 other replies