This is a brilliantly constructed film. I suppose those who remark it having a 'poor plot' long for something more simple, more direct, more traditionally 'Shaw Bros.' To be sure, the plot is intended to provide support for the interlaced themes, but it is complex and meaty on its own terms.
However the themes are indeed the heart of the film. The comic scene of the fake kung fu battle is clearly intended as a parody of the traditional swordplay film, down to the hand-squeezed blood-squib. The use of magic kung fu is, less clearly because more subtly, intended to debunk the myth of such magic, reducing it to a kind of martial-arts parlor trick - magnificently staged, but of course ineffective against anything other than itself. The real martial arts are at last presented with considerable credibility in the final third of the film, but is intended to remind us that, as powerful as it could be, the martial arts cannot compete with modern weaponry. Along the way, we also deal with problems of family loyalty, national loyalty (vs. phony 'patriotism'), and the nature of the spirituality necessary to master the martial arts, which requires an open mind and compassion rather than blind dedication.
What director Liu is reaching for is nothing less than a complete debunking of all the nonsense that had wrapped itself around the study of the martial arts in the 19th century and which was resurrected in the wake of the kung fu film phenomenon of the 1970s. Liu is asking us to respect, even admire, the martial arts, perhaps to learn them - but on their own terms, without all the myths that obscure their real essence.
This makes for a highly sophisticated script, which Liu carefully keeps popularized not only through the use of humor but, more importantly, by tight compression of story and editing. Blink and you will surely miss an important event.
As for the staging and camera-work some have remarked - technically, this film is pure classic Shaw Bros.
And as for the martial arts in the final battle - absolutely magnificent.
Unique in its genre and a real treat.