The second meditation on a skull to be found in the 18th chapter of the Zhuangzi is by Liezi who, espying a hundred year old skull beside the road, pulls it out of the weeds and says, "Only you and I know that you have never died and that you have never lived. Are you truly distressed? Am I truly happy?"
No doubt we could imagine all manner of deep metaphysical explanations for the first part of this pronouncement, but I, for one, am wary of going there. I would prefer to add the wonderfully ambiguous words "as if"; it is as if he had never lived or died. This is true from both his and our points of view. For his part, as no longer existing in the world, the question of his having ever lived and died is moot. From our perspective, well yes, he lived and died, but the skull is not he and thus for all practical purposes, the actual existential fact of his life is non-existent.
The real purpose of this story is not to speculate on the ultimate meaning of death, however, but to bring the opaque reality of death to bear upon our present living. We find death at every turn in philosophical Daoism; for some this might seem excessively morbid; for Daoism, this is precisely why it is so important that we embrace it so thoroughly.
In his The Denial of Death, Ernest Becker demonstrates how so much of our actual living is a subconscious denial of our dying. How much better then to allow that it should be affirmed as inseparable from life. When we say that "life and death are a single string" this means much more than that where there is life, death is inevitable; it means that our living should be informed by the fact of our dying. It is intended to help us release our white-knuckled grasping of life in fear of its loss in death. Taken, not as two things opposed, but as one single reality, life and death both become our experience now.
From the Daoist perspective, to die is to be unborn again. What's the difference between our non-existence before we were born and after we die? We arise; we return. From and to what we cannot know, but since it is as things are, how could we not affirm it? Easily; but this only brings suffering and that to no avail.
Daoism suggests we "return to that which we were before we were born" as a means to releasing ourselves to live life to its fullest. There is no life-negation here, but rather the freedom to live happily and well.
It might help us to understand this Daoist perspective by contrasting it to that of Zen where we are also enjoined to become what we were before we were born. For Zen, this unborn reality is in some sense a something. We in some sense exist before being born and it is there we see our “original face”. For Bankei, the unborn is the Unborn, ultimate reality. Zen makes metaphysical promises, neatly tucks something of our identity into Reality. Daoism makes no such assertions and might ask if this is not just another form of the denial of the opacity of death.
You can check out Scott's writings on Zhuangzi here.