It's a function of the United Nations: https://en.m.wikipedia.org/wiki/Universal_Postal_Union
Basically, China is being subsidized because they qualify as "third world".
Thus it made sense that USPS carries Chinese parcels for free, if China post carries US parcels for free in return.
Wikipedia on the UPU: https://en.wikipedia.org/wiki/Universal_Postal_Union
Although no expert, I do know enough to possibly answer your question. This has been going on since the 60's and to some extend the Universal Postal Union goes back to 1863[1]. At the time, when you wanted to mail a letter, it was fairly complex. You had to arrange for the details of your shipping for every route your letter took. Meaning you had to calculate for every leg of the shipment ahead of time. So they came up with these 3 points (From Wikipedia):
There should be a uniform flat rate to mail a letter anywhere in the world
Postal authorities should give equal treatment to foreign and domestic mail
Each country should retain all money it has collected for international postage. [2]
Along came USPS and signed a special deal with China in 2010 to increase their presence in China (well, that's the official statement anyway[3]).
That statement however leaves out a very important part. Which is that USPS lost so much money under UNU, that although they had a net loss of $29.4 million in 2012[4]. They would have "lost another $1 million or so in 2012 had Chinese shippers opted for regular mail instead of ePacket."[4].
So basically the USPS was already losing a ton of money, and this is a way of minimizing the damage.
The real issue is that the broader picture isn't really taken into consideration. Which is, that China is literally sending things for rates cheaper than Amazon which is estimated to pay USPS $2 per package[5]. Take the fact that most items are manufactured in China for cheap anyway, and you have just signed away a lot of domestic business opportunities.
[1]http://www.slate.com/articles/news_and_politics/explainer/20...
[2]https://en.wikipedia.org/wiki/Universal_Postal_Union
[3]https://about.usps.com/news/national-releases/2011/pr11_037....
[4]https://www.washingtonpost.com/news/storyline/wp/2014/09/12/...
[5]https://www.bloomberg.com/news/articles/2015-07-30/it-s-amaz...
Anyone feel free to correct or add information, it's an interesting topic.
The USPS isn't losing a ton of money. It is profitable.
The "loss" is that congress mandated that the USPS accumulate 75 years worth of employee retirement funds and gave them 10 years to do it. So they "lose" $5B a year because they are not able to pay that amount into a retirement fund.
I knew few Russians who made a non insignificant amount of money by going to China and setting up their own mail order dropshipping companies the same way locals did.
USA has a duty to help China to lift out of poverty.
The US built modern China in the exact same way the old European powers helped build up the US with vast capital inflows and trade.
All the parties have benefited. One can argue China benefited more, however the very undeveloped party in the transaction will usually benefit a lot more (again as was the case with the early US economic development in trade/investment with the British Empire or France).
Of course the British had smuggled out the design of Italian silk factories and rubber seeds from Brazil, breaking the Portuguese monopoly....it was ever thus.
How did this "deal" happen? Who is getting paid, and what benefit does the USA get from this?
I mean this is just consumer shipping we're talking about, small potatoes compared to commercial B2B shipping. But still it must add up to something significant as well as being demonstrably hurtful to US-based small business.