This paper is firstly on the research method: historical survey of the western fiction narratology will be focused and then compared with Chinese traditional narratology. It's necessary and significant to set up a basic, common mode of narratology, so that the common structures in narrative literary works can be analytically associated with studies on the structures, rules, expressions and aesthetics of fiction. Next to the theoretical research is an introduction to Sutra on the Wise and the Foolish: in addition to its focus, philosophy and historical background, four basic elements in narrative literary works: text, character, point of view, and interpretation, will be included. The conclusive points will focus on the two-level narratological structures and three-level characterization derived from the rhetorical appropriation.