The virtual presence of demon and god was an ideological activity of ancient China, and it played an important role in the formation of Chinese traditional moral and ethical concepts. Its influences can still be seen until this day. By applying literary theories to examine the evolution of ethical themes in Chinese classical novel , the identities of demon, man and god are found to be chaotic and actually none defining. Man is placed in between demon and god, where demon represents evils, and god represents the good in ethics. Due to this deep-rooted origin, the concept of demon and god still plays its part in the rules of modern Chinese ethics.