Yang took advantage of ideal scoring conditions at sun-drenched Mission Hills Country Club, firing a six-under-par 66 in the opening round of the year's first women's major.
Australian Lindsey Wright, who just six months ago considered quitting the game because of depression, was alone in second after carding a 67 with Taiwan's Tseng an ominous figure a further stroke back.
American world number eight Paula Creamer was among a group of seven players who opened with matching 69s on the Dinah Shore Tournament Course, permanent home for the Kraft Nabisco Championship.
Yang, who at 16 became the youngest champion on the Ladies European Tour with victory at the 2006 ANZ Ladies Masters, charged to the top of the leaderboard with a run of six birdies in nine holes from the par-three fifth.
"My whole game worked great," the 22-year-old said after totalling only 23 putts on the sun-baked greens. "I had a great feeling for the green speed and my rhythm felt good."
However, Yang will need to keep a close eye on tournament favourite and 2010 champion Tseng, who has triumphed three times this season in five LPGA Tour starts and won four of the last eight majors.
"I feel kind of disappointed," said five-times major champion Tseng. "I didn't hit many good shots and I didn't give myself many good birdie chances.
"But it's only the first day of the tournament and I finished four under. I am still on the first page of the leaderboard so I'm pretty happy about that. I'm looking forward to the next three days."
Wright took a four-month break from the game late last year after feeling "smothered" by golf and was delighted with her start at Mission Hills.
"From tee to green, I don't think I missed one fairway today ... and then you set yourself up because the course is just pure," the Australian said after covering her last nine holes in five-under 31.
"It was one of those days when everything just felt good. I didn't feel intense. It was just going smoothly.
"And I putted really well. Not everything I looked at, but my speed and line matched up really well, and it showed with my last nine, shooting five under."
Wright, who tied for fourth at the 2009 Kraft Nabisco Championship, said she felt reenergised after her decision to spend time away from the game.
"I was being smothered by it, by the lifestyle and golf, and I wanted to do something else so I took four months off," she added.
"It was really great. I took the time off and experienced other things, and I think that's made a massive impact for me coming into the year."
Wright last month won the New Zealand Women's Open, which is co-sanctioned by the Ladies European Tour, with a free-wheeling approach to the game with she has brought to Mission Hills.
Australia's former world number one Karrie Webb and fourth-ranked American Cristie Kerr carded 71s on Thursday while big-hitting Brittany Lincicome of the United States, the 2009 champion, battled to a 76.