Where do you suggest we sanitize values? Only in the client, when rendering them?
If you mean filtering out undesirable parts of a document (e.g. disallowing <script> element or onclick attribute), that should normally be done on the server, before storage.
If instead you mean serialising, writing a value into a serialised document: then this should be done at the point you’re creating the serialised document. (That is, where you’re emitting the HTML.)
But the golden standard is not to generate serialised HTML manually, but to generate a DOM tree, and serialise that (though sadly it’s still a tad fraught because HTML syntax is such a mess; it works better in XML syntax).
This final point may be easier to describe by comparison to JSON: do you emit a JSON response by writing `{`, then writing `"some_key":`, then writing `[`, then writing `"\"hello\""` after carefully escaping the quotation marks, and so on? You can, but in practice it’s very rarely done. Rather, you create a JSON document, and then serialise it, e.g. with JSON.stringify inside a browser. In like manner, if you construct a proper DOM tree, you don’t need to worry about things like escaping.
I think "normally" we should instead filter for XSS injections when we generate the DOM tree, or just before (such as passing backend data to the frontend, if that makes more sense).
Sanitize at your boundaries. Data going to SQL? Apply SQL specific sanitization. Data going to Mongo? Same. HTML, JSON, markdown, CSV? Apply the view specific sanitizing on the way.
The key difference is that, if you deploy a JSON API that is view agnostic, that the client now needs to apply the sanitization. That's a requirement of an agnostic API.
Saying sanitising is a form of encoding is even less accurate than saying that a paint-mixing stick is a type of paint brush. You can mix paint without painting it, and you can paint without mixing it first.