You are quite correct. The idea that Australia can begin to compete militarily against China with conventional weaponry is just stupid.
The most expensive thing in the world is a second-best military: good, but not good enough to win.
True - but paying too much attention to that means we might as well just get rid of our military altogether. Yeah, we can't win a conventional war against a nation with over fifty times our population - so should we just surrender now and save time later?
Whether we can win or not, if war comes, we're going to have to fight. Better to do something than nothing.
I've nothing, personally, against the idea of a non-conventional approach - up to and including nukes. But politically that isn't going to happen in the short term, where some boosts to conventional forces might.
The bottom line is that if we are ever at war with China, we're going to need help from our allies - most notably, at present (and I hope in the future) the US. We might need that help, but I, for one, only want to be asking for it in the knowledge, we've already done everything we can ourselves.
Added to that, that while China is a concern, it's not the only concern - we have the world's most populous Moslem nation just off our north west coast, and they outnumber us ten to one. China, we can't handle - but planning for China might give us a real capacity to handle Indonesia - if we ever need to. Hopefully Indonesia will continue to move towards secular democracy and remain fairly friendly. But we can't just hope that happens.
East Timor stretched us in 1999, and since then we've been operating at a tempo that is not all that easy with our current force structure. That demonstrates we need to come up with more conventional forces, whether we're concerned about China or not. China simply helps to make the case - it's not the only case.