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I just tested it now, all I did was save as UTF-8 with a BOM, and it converted just fine to Mobi. The chinese characters displayed perfectly in Kindle for Mac. You should also be able to use ANSI GB2312 or Big5 as well, but you need to specify the input encoding at some point, not sure where. I try to stick with UTF-8.
On what device is it showing up unreadable? Have you confirmed that the device is capable of displaying Chinese?
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