How can they manufacture, package and ship something for less than what it costs to post a card to relatives in Canada?
Actually, that's pretty easy to answer:
1) Wages are terrible over there, land/factory rental is cheap, so is electricity etc. So the manufacturing cost is low.
2) There's some kind of international agreement between postal services; I can't remember quite how it all works, but effectively every package Royal Mail deliver from China, is done by them (RM) for free. So the cheap postage is the result of (essentially) China abusing this international agreement.
This, I think, is why there's such a huge difference in postage costs between the internal Chinese services (EMS or ChinaPost) and the couriers such as TNT, UPS etc. for the same item. The downside is you have to wait longer, and it hurts Royal Mail.