Yes, I think Hong Kong and China have subsidies or something because just rebates for volume selling doesn't explain how could some sellers do free shipping at low prices.
I sell excess parts I have around from time to time on eBay and I simply can't go lower than about $.60 on postage alone, nevermind that a simple bubblewrap envelope is about $.20 if I don't order 300-500 at a time to get a better price.
There's also the eBay fees of about 9%, paypal sucks a few percent as well... the only way I could compete is by service (keeping people updated about the package) and shipping fast ... if I pay about 15 cents extra for priority postage, I usually get my packages in 5-10 days to people in Europe.... the Chinese guys can't really get this fast yet.