Initially you fight him at Nan Yang, with Lu Fan, Yuan Yin, and Lu Bu if you didn't recruit him. If Zhang Fei survives the fight, you'll catch Yuan Shu with the option to let him go or kill him. If you choose not to let him go three times (maybe four) he'll die. If you let him go, he'll fight you at Ji Zhou castle with Yuan Shao, later in the game. Yuan Shu himself is quite difficult when you fight him at Nan Yang. His soldier level is higher than anyone you've seen at this point in the game, and his stats are pretty balanced. If you're playing Yuan Shu when he has Lu Bu, it's even more difficult obviously. Take out Lu Bu first and Yuan Shu after that, and the battle should turn your way.
Destiny of an Emperor II : Str. 190 – Int. 135 – Agi. 115 – Soldiers – 400
Destiny of an Emperor 2 Analysis : Being that DoaE2 starts off later on in time as opposed to DoaE, you end up fighting Yuan Shu right away. He has stolen the seal and you're under Cao Cao's reign; he has you going after Yuan.