In terms of the lack of really any physical romance of any kind or even SUGGESTIONS of sex, I think that was definitely the film trying firmly to appeal to a Chinese audience. This accounts for the lack of gruesome deaths that American audiences crave as well.
As someone living in China, I've noticed a few things about Chinese TV and movies. Often, you'll see someone get badly wounded that would be a great excuse for gore in the US, but instead they'll have perhaps a single streak of the fakest-looking blood you've ever seen running down their cheek. In terms of the sex stuff, let me put it this way--they re-edited The Shape of Water to remove the scenes where she was naked to remove all the nudity, even going as far as to add a strange black slip-shaped mask over her back when she takes off her robe and we see her from behind before the fish sex scene. It's so poorly done and obviously looks like those Adobe Premiere masks that I laughed out loud in the theater, earning strange looks from the Chinese viewers around me.
Catering to the Chinese market like this is not new. Think of how in Arrival the main world-saving information was given to Amy Adams by the Chinese general. Tons of films have been trying to present Chinese actors/characters as heroes and appeal to the Chinese sensibility in order to rake in some of that sweet sweet dough.
It's also interesting that this film was released the same time in China as in America, which is NEVER true for American movies. Even the Marvel movies, which also make huge swaths of money from China and are absolutely the most popular movies here, open much later. For example, Ant Man and the Wasp just opened last weekend (August 21) and the new Mission Impossible opened a couple days ago. The fact that this movie opened at the same time in China as America definitely lends credence to the idea that it's almost more of a Chinese import to America than the other way around.
One more Chinese thing: the beach is pretty real. Obviously they exaggerate it as movies are want to do (I mean, that shark isn't real either), but Chinese beaches are NOTORIOUS for being absolutely jammed. The water balls are real, everyone in tubes is real (most Chinese people can't swim), and Chinese women getting mad at people ruining their wedding pictures is real. Also, as a conspiracy theory note, the island in question (Hainan) is China's only real "resort" area, sort of like Hawaii. However, most Chinese tourists/vacationers traditionally choose to go to Thailand or elsewhere to vacation, paradoxically because Hainan beaches are thought of as over-crowded and absolutely filled with litter. The Chinese government recently has been trying to make strong pushes to encourage people to vacation in Hainan (within borders) as opposed to going abroad to do it, so the choice of that island for this movie might be more than just a random artistic whim of the screenwriters.
