Abstract: Xiaoshuo is the modern Chinese term for the novel or fiction of any length. However, this term originated from Chinese historiographical writings and had been used since the fourth century BCE. The question is therefore how this term came to translate the modern concept of novel? Through an analysis of a variety of Chinese translations of Western works as well as literary discourses during the late nineteenth and early twentieth centuries, this paper demonstrates ways in which xiaoshuo was appropriated by Chinese intellectuals in conceptualizing Western narratives, through which the idea of Western literature emerged. In particular, this paper argues that the merging of “xiaoshuo” and “novel” reflects an ongoing epistemological negotiation between the Chinese and Western literary traditions.