Go into Settings > General > Keyboards > International Keyboards and then go to "Add new Keyboard." For Chinese they have traditional handwriting and pinyin as well as simplified handwriting and pinyin.
Once you add the keyboard you need, there will be a little globe in the bottom left of the keyboard. Hit that button to change through all the keyboards you have.
I've noticed that the people I work with who use the Chinese seem to have problems with it. It doesn't always display the right character. Maybe there is some app you can download to improve the character recognition? You should check it out.
