Crouching Tiger, Hidden Dragon proved to be such a big hit, when it was released about sixteen years ago, that it was probably something of a surprise to a lot of people, at the time, that plans for a sequel weren't put into motion almost immediately. It's not like there wasn't plenty of potential for a sequel, either - with Crouching Tiger, Hidden Dragon being an adaptation of one of a series of five popular Chinese novels.
The explanation for the lack of a sequel is fairly straight-forward, though. Despite the success that Crouching Tiger, Hidden Dragon enjoyed in the West, where it was something new and different, it really wasn't treated as anything special in its native country. In China, Crouching Tiger, Hidden Dragon amounted to little more than just another wuxia/martial arts film (of which there have always been plenty) - and, the overall slow pace of the film, along with a shortage of action when compared to similar films, seemed to have further hindered its efforts to stand out. On top of that, there was also the issue of the performer's accents (an issue that Westerns audiences wouldn't even have noticed if it wasn't pointed out to them) - with much of the cast required to perform in a language that they simply weren't familiar with and the results, naturally, being mixed.