Chinese fictional literature has a long, rich, and varied history. There's a famous episode in the late 1700s (I think) where a friend asked Goethe what he was reading; it was a Chinese novel. His friend said it must be strange, Goethe replied no, it's very much like a European novel and they've had them for far longer, which is quite correct.
From the fantasy of "Journey to the West" (which is deeply Buddhist, and is a very fictionalized account of an actual journey to India by a monk), to the super-heroics of "Men of the Marshes" (aka The Water Margin, aka All Men are Brothers) and the heroes - and villains - of "Romance of the Three Kingdoms" (a "historical novel" set in the breakdown of the Han dynasty written many centuries later) to the more "literary" and "naturalistic" dramas of The Scholars and especially "Dream of the Red Chamber" , the overall structure of storytelling would be very familiar to Westerners, and if they had problems, it would probably be in not understand some of the traditions and cultural events going on. Otherwise people fight battles against evil, or scheme, or fall in love, just like in Western literature.
Following the May 4th Movement of 1919, there was a whole new series of Chinese authors who wrote mostly naturalistic fiction, somewhat (though not totally) influenced by Western literature, such as "Midnight" by Mao Dun, the stories of Lu Xun, and "Rickshaw" by Lao She, who also wrote a strange little piece of Science Fiction called "Cat Country" about a society of humanoid cats on Mars (it's really a satire of China). A lot of the May 4th stuff tends to be moral-heavy.
I'm not sure (perhaps he'll tell us) but I think Liu is drawing on Chinese ghost stories, such as those collected in the translation "Strange Stories from a Chinese Studio" and graphed it on to a steampunk story. That's not meant as a slight, however.
(here endth the lesson)