The paper considers the growth of identity among Muslim ethnic gropus in China, especially the Sinic people called the Hui. It asks whether this identity springs primarily from ethnicity or religion. While affirming that Islam has grown in influence in China since the 1980s, the paper argues in favour of seeing the balance more strongly in favour of ethnicity. The paper also discusses the impact of the September 11 Incidents on Muslims in China. Addressing the issue in terms of ethnicity and religion, it discusses the ramifications of the recognition of the Uygur-based East Turkestan Islamic Movement (ETIM) as a terrorist organisation by the US and United Nations. It explores important issues relating to morality and human rights and concludes that the Chinese have cause to worry about separatist terrorism based on Islamic fundamentalism in southern Xinjiang, but criticises using recognition of ETIM as terrorist as a weapon against the general religion of Islam or against Uygur identity. Keywords: China, Islam, ethnicity, identity, Hui, Uygurs.