Oh I feel a bit silly now, I was looking through that exact documentation and somehow I have completely missed the ENCODING option. Duuuuh.
Thanks for the tip, works like a charm.
However, since I've opened the thread, are there any other alternatives for XML output straight from the database? Using the EXECUTE IMMEDIATE and then the UNLOAD SELECT... seems a bit inelegant. Are there any more SQL Anywhere functions that will export data to XML?