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A man named Laozi, who was an archivist for the Chinese government, created Taoism in the 6th Century. Taoism is based on the concepts of 'tao' (the way or path), and 'wuwei' (passivity). Fellow Taoists believe that the 'tao' is a guide to the principle of truth and reality, which is sought with humility, and through a life of simplicity. The forces of 'yin' (feminine, weak, dark, and passive) and 'yang' (masculine, bright, activity and heaven) determine the events of the world.

A debate on whether Laozi ever existed continues to linger even though there have been numerous legends based on the sage. The book, 'Daodejing' (The Way and Its Power), by Laozi contains his philosophies, but certain scholars believe that it was written not only by Laozi, but also by other philosophers like him. Laozi had a few disciples with him. Amongst them were Liezi, who upheld the relativity of experiences and strove to grasp the 'tao' by meditating. Another disciple, Zhuangzi, was famous for his poetic parables.

Taoism became popular during the Han period (206BC - AD220). With the rise of Buddhism, ideas from Taoism and Buddhism overlapped each other. Both religions perceived the great paradise to be in the far west of China, thus its name, Western Paradise. The concept of hell was also adopted from Buddhism. Taoists often devoted their time to meditation and priests were known to be medicine men and interpreters of oracles. The priests also conducted exorcism and funeral rites, and prayed for the dead with occasional sacrificial offerings.

The hierarchy of Taoist gods is based on historical and legendary figures. At the top, there are the three Commendables, with the Jade Emperor as the highest-ranked. A popular god is the God of Longevity, 'Shouxinggong', a pleasant old man with long white beard and a bald, elongated head. Others include the God of Wealth (Caishen), the God of Fire (Huoshen), the Kitchen God (Zaoshen), the God of Literature (Wendi), and the God of Medicine (Huatou).

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