Chinese characters in Microsoft Outlook 2007

Go to Tools > Options > Mail Format (tab) and then: Select drop down option "Western European (Windows)" encoding for outgoing messages

For incoming messages that are not readable, open the message, click on "Other Actions" in the "Actions" tab > Encoding > Chinese Simplified. The type of Chinese Simplified font doesn't seem to matter much. This can still leave unreadable characters in the subject line though.