One useful mechanic in Wuchang is the option to respec, or reallocate your upgrades, at any time. If you feel like you're a little weak or there's something you haven't tried yet, make sure to respec -- don't worry, it's free and can be repeated indefinitely.

The item on the ground is a Red Mercury Shoot x1. Pick it up, then head to the building on the right with the glowing treasure chest. Inside the chest, you'll find Lost Remains, which will allow you to increase the Manna Vase's potency at the shrine. As you exit the building, an enemy will emerge from the darkness and attack.