(...) Lying about having good specs and not standing by your product if it fails to meet them is free.
It's free until it puts you out of business. Which, for almost any western company, is what eventually happens if you do this.
The problem when buying cheap products from China that don't meet their rated specs is that 1/ either the product was so cheap that you won't even bother calling the company on it (because your time to do this will cost you more than the product itself), or 2/ if you do, the company is likely to not even answer. Either way, given the often huge market those companies address, and the difference in laws, angry foreign customers are very unlikely to harm them in any significant way. This is a very significant difference in how business works for them compared to most western companies, and this is the real problem here.
Of course as said above, not all cheap products from China are crap, so we're talking about products that don't meet their advertised specs only.
Another obvious point is that in most cases, as long as you're a decent engineer, it's possible to at least reasonably "guess" that what is advertised can't be true, based on price, description, company's profile, etc. Even chinese companies can't seriously sell a given product under a certain price tag, at some point it just doesn't add up, and knowledge about the electronics market should help you with this. If you're fooling yourself, it's YOUR problem.
Now for the more general question of why people tend to go for the cheapest they can find these days, putting cost over almost anything else, the answer seems pretty obvious. It's either out of limited means, or greed.