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In my early game, my Japanese have pushed the Chinese out of several cities. It seems the retreat priority is based on the best road, rather than to the Chinese interior. so now I have groups who have retreated in the directions of areas with no supply path. Is there anyway to control retreats?

Troops just retreat towards the best supply.

Troops will not retreat into an enemy (or contested) ZoC so make sure your preferred line of retreat is available but other than this, I don't think there is any mechanism to control retreats. IIRC Allied troops, on the fall of Sian, retreat towards Lanchow rather than towards Chungking so to prevent this probably unwanted line of retreat I start the troops moving towards Chungking before the city falls. The city probably will fall a turn or so earlier, (I think the defensive value of the troops decreases as they move away from the hex so after moving 30 miles defensive value is halved) but in my mind a cost well worth accepting so that my army falls back towards Chungking.