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It's not surprising at all... The AI will continue expanding until it no longer can. If there is room left to build a city, it will, even if it's in your general territory. The fact that it moved to a tile you thought would make a great city should just confirm to you that it was indeed a good place for a city 
The 3.17 patch really improved the AI"s city location placement. In my last game, I just loved it when the AI did just as it did to you. It then improved the area around the city, built a few decent buildings, and then turned it self over to me because of culture. As always, it came with a free unit as well
The 3.17 patch really improved the AI"s city location placement. In my last game, I just loved it when the AI did just as it did to you. It then improved the area around the city, built a few decent buildings, and then turned it self over to me because of culture. As always, it came with a free unit as well
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