Junbao and Tienbo grow up together in a Shaolin Temple as monks, studying the martial arts and generally getting into trouble. They are both expelled from the temple after Tienbo impulsively almost kills a fellow student who cheats in a fight against him. Aided in their escape by their sympathetic teacher, they receive final instructions regarding the potential paths of their different personalities, with a specific warning given to Tienbo.
Miss Li then shows the two sworn brothers to a pub for food. Inside the pub, they find a young woman named Siu-lin, who is searching for her lost husband, during which she supports herself by playing on a sanxian that said husband gave to her as a wedding gift. She finds him inside the pub as the new husband of the governor's sister, who picks a fight with Siu-lin. Siu-lin gets the upper hand in the duel, but the husband, eager to please his wealthy new wife, hits and injures Siu-lin on the head with a stool. Junbao comes to Siu-lin's rescue by fighting off the governor's sister's bodyguards before fleeing.
The next day, while Junbao and Tienbo are making money with their amazing kung fu skills, the governor's second-in-command spots them and is impressed with Tienbo's abilities (and his eagerness to kow-tow to authority). He offers him a position in the army, which Tienbo readily accepts. However, Junbao is more reluctant to do so and declines going with Tienbo, and so the two brothers part ways.
Later, some soldiers come to the pub to collect taxes (which have increased due to the governor’s greedy nature), but Junbao and the rebels (who have stolen great valuables from the governor to give back to the poor) fight and kill them one by one. One soldier escapes alive and starts off towards the army's camp to warn them about the rebels with Junbao in pursuit. Just in front of the army encampment, Tienbo kills the soldier before he warns the rest of the army about the rebels whereabouts. Tienbo warns Junbao to stay clear of the rebels as they'll get him into trouble. Now knowing where the rebels are hiding however, Tienbo takes this unique opportunity to gain a promotion. He sets a trap for Junbao and the rebels by telling them that the army is on patrol and when would be the best time to attack them.
Junbao and Siu-lin collect all the rebels from the region and go to the army camp (thus, falling for Tienbo's trap). A big battle occurs where most of the rebels die. Tienbo captures Miss Li and Siu-lin. In the end, the only escaped survivors are Junbao and a few rebels. Because of the trap, the governor promotes Tienbo to Embroidered Uniform Guard lieutenant. Tienbo kills Miss Li to prove his devotion to the governor, and with his new authority (and some poignant advice from the governor) holds Siu-lin as bait so that he can lure Junbao to defect. Junbao shows up to confront Tienbo and rejects his offer, and after a fierce fight manages to rescue Siu-lin. However, due to the injury he receives and the fact that his best friend betrayed him, Junbao's mind snaps and he goes crazy. While recuperating in the countryside safehouse with the help of Siu-lin, he has a sudden epiphany that regains his mental health, and begins using natural phenomenon as inspiration to create a new style of martial arts which uses "soft" movements to offset power, speed and strength.
While the governor is traveling to Beijing to see the empress, Junbao and Siu-lin intercept the convoy, defeat his sister and guards and captures the governor as a hostage, before going to the army camp to confront Tienbo. Due to his arrogance, Tienbo declines and starts to fight Junbao, thinking the latter is still the inferior fighter. To Tienbo's surprise, however, Junbao is now fighting using the heretofore unseen style, which he calls Tai chi, and is able to fend off Tienbo's superior strength with ease. Out of frustration, Tienbo kills the governor in order to gain complete control over the troops surrounding them. Siu-lin intervenes and convinces them not to listen to Tienbo, as he just betrayed their leader. Seeing this (and also the brutal way Tienbo utilizes his troops as battle fodder), the troops back off and leave Tienbo's fate to Junbao. After a stunning series of parries and blows by Junbao, Tienbo is defeated and eventually killed when he falls upon a bundle of spears.
After the fight, Junbao parts way with Siu-lin, and returns Tienbo's ashes to the Shaolin Temple, before establishing his own school at Wudang Mountains.
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