First of all, check out the China Starter kit (
here) which should help answer your question.
As for my personal opinion, I think you would be crazy to pay what the travel company is suggesting. Ultimately, it depends on how you like to travel and how you deal with challenges. If you want everything to be taken care of for you and not have to deal with the challenge of communicating, then the tour is for you. But for those that enjoy trying to talk with people and interacting with locals, then doing it on your own is the way to go. You will almost always find someone who can help you out with the language and local hostel/hotel folk can assist with getting train/bus/plane tickets as well.
Sure, you will be overcharged and possibly scammed a bit (it helps to be aware of some of the common scams) and even given some counterfeit money, But despite all that, I think it will not come close to how much your travel company is trying to rip you off! Just be aware that you would not be the first "laowai" to travel to China without a tour nor will you be the last.
Just come here with an open mind, patience and a smile and I am sure you will have an unforgettable trip!