How does URL rewrite work in Chinese and does it have any impact for Baidu?

Search engines including Baidu are totally okay with URLs with Chinese characters - no evidence shows that would give you any SEO benefit though. I think the main reason why those Chinese websites don't use Chinese characters in URLs is they may cause extra encoding/decoding work. For example, the URL "http://www.xxx.com/%C3%A4%C2%BD%C2%A0%C3%A5%C2%A5%C2%BD" is "http://www.xxx.com/%C4%E3%BA%C3" in a standard Apache server log. You have to decode it to see what the original URL is. Things like this can cause unnecessary trouble to many people in those companies, such as SEOs, web analysts, etc. Users may be confused too when they copy/paste the URLs. About why those companies don't use pinyin in their URLs: E-commerce websites generally have much more web data analysis work over other types of businesses, so their URLs are usually designed to contain important information such as product ID, etc, which makes it easier for them to conduct data analysis work. SEO is not a major concern or may even be sacrificed here, since using pinyin or Chinese characters may not necessarily bring any SEO benefits.