Horizontal drilling and multi-stage hydraulic fracturing are the two key technologies for the successful development of shale gas reservoirs. However, there exist large uncertainties in optimizing hydraulic fracturing which affects water retention into shale matrix and gas productivity. In this work, a basic reservoir model with six-stage hydraulic-fracturing treatment was constructed to understand water retention and gas production in shale gas reservoirs. Gas diffusion, gas desorption, Darcy flow as well as non-Darcy flow were considered in this model. Then, a sensitivity study was performed to investigate the effects of hydraulic fractures on water retention and gas conductivity. The results indicate that only 34% of the fracturing water could be recovered back to the surface, and most of them remain in shale formations to interfere with gas production. The increase of fracture half-length, fracture width, fracture permeability, and fracture conductivity will reduce water retention while water retention in shale matrix will increase with the increasing of fracture spacing and fracture number. This work can provide a better understanding of the effects of hydraulic fractures on gas and water flow so as to optimize the hydraulic-fracturing treatment in shale gas reservoirs.