The cut sleeve story is about the Han Emperor Ai and his partner Dong Xian. During the Han dynasty, about a third of the emperors were bisexual. It was common enough that Sima Qian even included a chapter on it (佞幸列傳 Biographies of Male Favorites). Sons were supposed to succeed their father, not empresses, concubines, or male favorites. Nevertheless, Emperor Ai basically tried to make Dong Xian his successor. It failed spectacularly. Towards the end of the Han dynasty, we also know that General Liang Ji, his servant Qin Gong, and wife Sun Shou were a throuple. A century before them, General Huo Guang, his favorite Feng Zidu, and wife Xian were a throuple as well.

Homosexual relationships among the ruling class are attested back to the Zhou dynasty. Han Fei wrote about Duke Ling of Wei falling in love with Mizi Xia and giving him special treatment as a result. Historical criticism of these gay relationships concerned vanity and being unqualified, not the gay aspect. The male favorite phenomenon ended by the Song dynasty.

Eventually Confucianism caught on, placing emphasis on the (patriarchal, heterosexual) family. Of course, economic systems based on private property tend to develop these ideologies, so China shouldn't be viewed as exceptional. They have Confucianism, we have the nuclear family. Whatever. Point is, heterosexual marriage and reproduction were socially important, but this wasn't a rejection of homosexual relationships per se. It did however make it very difficult to have a lifelong gay relationship. The Ming-era bureaucrat Shen Defu wrote that in Fujian there was an institution of homosexual marriage where a younger and older man would move in together and sometimes adopt. After 20 years, the older one would find a wife for the younger man, and they'd break up. However, there are some exceptional cases.

There's the Three kingdoms and Six Dynasties period (I think) story of Wang Zhongxian and Pan Zhang who are described to be "as affectionate as husband and wife." They were intelligentsia rather than royalty. After a lifelong relationship, they died together and were mourned by everyone who knew them.

Speaking of the middle class (or whatever, sorry I'm not well versed in historical Chinese class systems), there's a record stating that during the Liu Song dynasty (275-290 CE), MLM relationships were so common that it was causing estrangement between husband and wife. That said, people often exaggerate about this sort of thing. Men were legally allowed to have multiple lovers, but women were not. Women were also disadvantaged, so information on sapphic relationships is scarce.

In the 1700s, Li Guiguan and Bi Yuan exchanged vows of fidelity and were basically married. One was an actor, and the other was a bureaucrat. At the time, actors were low class, not respected, and overlapped with prostitution. As a result, there were centuries of legislation criminalizing these types of relationships, but enforcement wasn't common. I think it was most consistently repressive during the Qing dynasty, but I forget all the details. Unfortunately, official-actor relationships are the only example of lower class homosexuality I can think of. Historians were not rolling with the LGBT peasantry. 😔

I would recommend reading Li Yu (1611–1680). He was a Ming dynasty writer that apparently wrote erotica (I have not read it) as well as gay stories (which I have read). He's the legend that wrote The Fragrant Companion. It's a sapphic play with a happy ending written in the 17th century. Incredible. There's also an English translation published. He also wrote “A Male Mencius’ Mother” (Nan mengmu jiaohe sanqian 男孟母教合三遷) which is an MLM story. It's weird, and expresses skepticism in lifelong gay relationships. It depicts pederasty basically. Good read if you're studying this subject, but bad read if you just want to read gay romance.