Between the 16th and 18th centuries, Islamic literati actively translated and wrote Islamic texts in Chinese for use by Hui Muslims and the Scripture Hall Education System in China. They used Confucian terms extensively to explain Islamic thought. This phenomenon has been interpreted recently in China as a process of Confucianization of Islam. Consequently, it is claimed that Islam in China is distinctive because it is Islam with Chinese characteristics. This is a study of the issue of the Confucianization of Islam in China from the perspective of contextualization. Liu Zhi (c. 1662 – c.1730) is one of the most well known Hui Islamic scholars. Both his acclaimed trilogy and his short treatises, including a Sufi poem, are examined by using two foundational themes, namely the concept of unity of existence and Sufi spirituality. Firstly, this study shows that Liu Zhi’s concept of unity of existence is based on the Ibn ‘Arabi tradition which has been influential in Chinese Sufism. Liu Zhi translated Persian and Arabic Islamic texts and interpreted the concept of unity of existence by primarily using Confucian terms with the aim to make difficult Islamic concepts more comprehensible to his readers. Secondly, this study shows that Liu Zhi’s Sufi spirituality is in active conversation with the Chinese cultural contexts. Sufi spirituality is contextualized primarily, but not exclusively, as Confucian self-cultivation. The Sufi path is also interpreted as a Buddhist concept of ‘vehicle’ (乘). The goal of Sufi spirituality is the return to the Real by the empowering role of the prophet Muhammad who is contextualized as the Utmost Sage. Finally, contrary to the common understanding that Liu Zhi has Confuciancized Islam, this study shows that Liu Zhi contextualized his Islamic tradition by using a composite translation-conversation model of contextualization. He was always faithful to his Islamic tradition and contextualized the Sufi spirituality as practical wisdom.