Keeping in mind that I have no idea how to properly read this, as for the pricing it looks like in 2016 letter post from Hong Kong to Sydney was 0.538 SDR per KG, which was about AU$1.03 per KG.

Interesting, so on face value, that works out to about $5 for a max 5kg package to arrive from China, whereas the same 5kg package within Australia would be $10.60.
Either Australia Post is taking a loss on every international package, or making a big profit on every national package.
Possibly both, where one offsets the other.
Whilst that would keep Australia Post solvent, it has externalities, simplistically it's a tarif on local manufactured product.
That cannot be a desirable outcome, especially as China already has a $/man hour advantage.

Also the 77c for the head torch is a one time welcome deal, it shows up as $8.97 for me when logged in. So Aliexpress is probably just making a loss in hopes to make a profit from you later.

Yeah, entirely possible. I haven't ordered one of these and don't intend to, but I just bought some screw drivers etc for ~ $8, which means they would have to make them for like $4 to turn a profit.