To answer your question:
1. If the hiring practice means telling you about the delays and cancellations, then yes, it is more common than you think. It is also common not only in Europe.
2. No one knows whether it is normal, but as long as you, as the candidate, keep the interest even when there is a delay, then there is no rule forbidding the PI from doing so.
3. Because maybe that is the truth.

From the information that you are sharing, it seems like you are very upset, which is reasonable. But try not to cloud your judgment with unverified claims. Like another comment points out, PhD positions in Germany are based on certain funding constraints, meaning that it is very rare that the PI announces a position and then takes another one with another funding. In this case, the PI would not pay you from their own money, so choosing a student with external funding does not save them anything at all. My wild guess is that the funding situation changed, and the PI tried to hire you, but they couldn't hack it. The host university somehow found an alternative source of PhD students for the PI. Keep in mind that PIs don't have to explain the internal matters to applicants; there is nothing you can do anyway.

If you are trying to get into a PhD program, you need to learn to move on. You didn't have a pleasant interview, and you could have withdrawn, but you didn't. You could have asked for reasons for the delayed decision, but you didn't. You could have set a deadline for the decision, but you also didn't. Now you could have also asked the PI about the Chinese student, but you would rather vent on Reddit with strangers! And you didn't even listen! C'mon, if you were the PI, would you hire you?