The problem is in the following line...

    return ''.join(v).encode(encoding, "xmlcharrefreplace")

The .encode(encoding, "xmlcharrefreplace") is returning a bytes object.

Here is the simplest change to resolve the problem.

    return str(''.join(v).encode(encoding, "xmlcharrefreplace"),
                encoding=encoding)

But maybe a different way to implement "xmlcharrefreplace" is what is needed.  Would it be better if it were a function or method in the xml (or html) module?

Just because it can be implemented as an encoding doesn't mean it should be.