Actually in Australian slang Hey China is short for Hey China Plate, which is rhyming slang for Mate.
So basically they might have been saying Yo Dude.
Anyway, it seems a bit odd, sounds more like bad grammar than bad manners.
Also, many people living abroad or from ethnic backgrounds end up more sensitive than they should be because of past racism.
To give you an example, my manager was upset about some clip art representing asians in what he thought was a negative way. I pointed out to him that these clip art images were from Asia. You see Asians offer represent their own cliches in ways that people living abroad might find offensive.
Anway, you have the right to called what you want to be called.
Next time someone says "hey China". Don't attack them and call them racist, just ask tell them you don't like to be address in that way.
PS: Chinese friends in China always refer to me as "foriegn friend". Which annoys me. But they also have Shanghai friend, Old friend, young friend etc. So I guess it is ok, just as long as they don't call me Foriegn Devil (which really annoys me). Though if a sexy chinese girl suggetively calls me "foriegn devil" that is ok.