Taken from Amazon:
To view your personal documents with non-Latin characters on your Kindle, send your file as a Microsoft Word document (DOC) attachment to your Kindle's e-mail address ("name"@free.kindle.com). The file will be converted to Kindle format and sent to your Kindle via the Wi-Fi connection and also to the e-mail address associated with your Amazon.com account at no charge. This is a way to view chinese files on kindle without hacking.
Or you can press <Home> <Search> and enter the following commands:
~setLocale zh-CN <Enter>
Chinese .txt files via usb do not turn out well. Chinese titles cannot been seen in the home menu as well. The ones from @free.kindle.com will be in pinyin. The text however shows up correctly.
The best method i find is to use the font hack...