As a student, I personally agree with you that any grading system we are using does harm to us and can never be absolutely fair. However, I believe that somehow we need the grading system. It is true that every grading system is harmful. Students usually get hurt if they get lower grades than what they should deserve. Particularly in China, students take grades extremely seriously.
Grades are their fates.
Scores are everything to them. Some students do not have a second chance to get in college if their college admission test scores are one point below the minimum admission scores. There are some tragic stories about those unlucky students. Many of them have psychological problems, and some of them have committed suicide. It is also true that any grading system can never be absolutely fair.