"Good" and "evil" translate perfectly well: hao and e respectively. These were generally used as evaluative terms. They were as important in Warring States philosophy as in any other philosophies. "Good" (hao) in the ethical sense was understood to mean prosocial: good for society and good for interpersonal situations and interactions. Conversely, e referred to antisocial behavior: gratuitous harm or insult to other people. Mencius and Xunzi explained this particularly well. Interestingly, the Cantonese language parallels St. Augustine in describing evil as a privation of good; m hou, "not good," was usually used in Cantonese where Mandarin would use e or similar words for evil. (See E. Anderson 2007; Anderson et al. 2000. For the whole story of early Chinese thought, Mencius [e.g. 1970] is essential; the best survey in English of early Chinese philosophic logic and discourse is Harbsmeier 1998, but it has its problems; see Graham 1989 for a more readable and in many cases more accurate assessment.)
The proper "way" to act and the cosmic Dao were subjects for endless discussion. The equivalent of "ethics" in Aristotle's sense, that is, what is good for the individual as opposed to the collective, was not usually regarded very highly. When it was, the Dao was pressed into service, and people followed the True or Constant Dao rather than being "good."
So what we of the West tend to translate as "ethics" is really "politics" in Aristotle's sense, that is, what is proper for the social sphere. (Aristotle used "ethics" to mean what an individual should do. Thus a great deal of what modern philosophers call ethics would have been politics to Aristotle.) What we call Chinese philosophy is also more like Aristotelian politics than Aristotelian philosophy. This is only one example of the contrast of social-oriented East Asia with the individualist West—so often exaggerated, yet still so real.
Other words for "good" include zheng, "upright, straight, right, true," metaphorically extended as in English. Specific virtues like loyalty, courage, honesty, and probity had their own terms. Most interesting of all is ren, a derivative of the word for "person" (ren). As noted above, the moral ren is written with the character for "person" next to the character for "two." It is a verbal noun, meaning "the way two people should behave toward each other." The English extensions of "human" into "humane" and "humanistic" (in the moral sense) are exactly equivalent in both derivation and meaning. The old missionary translation of ren as "benevolent" is far out of line, and modern writers usually use "humaneness."
Most traditional Chinese believed that people were naturally good in the sense of eusocial. This position was convincingly argued by Mencius (fourth century BCE) in the Ox Mountain story and elsewhere. A major challenge by Xunzi (third century) held that human nature was thoroughly e. Both Mencius and Xunzi, however, agreed that education was necessary, either to keep people on the right moral path (Mencius) or to reform their innate badness (Xunzi). Mencius defined his entire morality as an extension of ren, and that term remained central. An old folktale tells of a family with five generations living happily under one roof—a Chinese ideal but rarely seen in reality. The local governor asked the aged head of the household how he managed it. The household head simply drew the character ren on the wall.
Over time, Mencius won out, mostly because his predictions were correct and Xunzi's were not. People were, and are, generally sociable and at least somewhat well-meaning, in Mencius' sense. When they were not, critics could point to poor education. This erased the distinction between "ought" and "is," so famously made by David Hume in the Western world. For Chinese, the natural (ziran or xing) "is" is the "ought." If people are naturally sociable and "good" and if society depends on their moral insights, the distinction is one without a difference. Hume answered similar charges in his own time by pointing to the un-British morals of ancient Rome, a culture highly admired in Hume's world but extremely different in morality. The Chinese had no such different yet respected society to contemplate. The "different" societies they knew were "barbarians," "lacking education," as shown by their economic and political marginality as well as by their cultural "otherness." This lack of a highly respected but very different comparison society cost China the chance to think more deeply about morality.
Dualism—the idea that good is heavenly, and earth, evil—has been common in Western thought throughout history. From original sin (Genesis 1 and 2) to Hobbes to Freud to Richard Dawkins, Westerners have generally concluded that humans are born evil and antisocial and must be whipped into shape—often quite literally. (In my childhood, people around me universally believed that children had to be savagely and frequently punished, and phrases like "spare the rod and spoil the child" and "beat the devil out of him" were invoked in a quite literal sense.) The belief has been that humans are driven by the devil, the "id," selfish greed (now called "rational individual maximizing"), or other dark inner forces.
This idea dates back to ancient Near Eastern dualistic thinking and survives in Christianity, thanks to Manichean and Neoplatonic influences. Thus proper Christians pray, "From all the deceits of the world, the flesh, and the devil, good Lord, deliver us" (this and similar lines occur in many prayer books, including the Great Litany in the Episcopalian Book of Common Prayer). Xunzi and his follower Han Feizi had similar beliefs but never took them as far. They never believed that evil was built in and ordained by the gods; they thought it was just natural selfishness, which was correctable by education. They also never dreamed that all human pleasures and enjoyments could be regarded as sinful simply because they were enjoyable. Xunzi and Mozi condemned luxury as wasteful, but they never condemned enjoyment per se.
In all these philosophic ways, from yang-yin cosmology and qi physiology to thinking of humans as prosocial yet needing education, the Chinese philosophy of the Warring States and early Han periods lasted until recent times. This does not mean that China was changeless or tradition bound. Belief in particular ideas and systems fluctuated greatly. New philosophies, notably Buddhist schools of many kinds, entered the culture and had great influence. Original ideas and original applications of old ideas abounded. The old core of Mencian, Daoist, and Legalist thinking persisted, just as ancient Greek and Near Eastern thinking did in the West—but, as there, it did not persist unchanged.
However, the modern world brought a genuine rupture. Modern European culture, especially Marxism, imported to China the Hobbesian view: the idea that humans are individual rational calculators, basically selfish, greedy, and mean and thus in need of strict governance. Also imported was the idea of "man" against "nature." These new ideas led to a catastrophic breakdown of Chinese moral, environmental, and political culture.