I didn't test Cathay but I don't think so.

I don't think even the vanilla auto construction do it.

Will it balance well with the Cathay Ying and Yang system?

yes the purpose of this feature is for the late game and I don't agree with about not being attacked.

Late game as your empire getting so big you can't protect every corner so you need more protection to your settlement.

I'm playing on legendary and from feedback I got from friends who playing the same difficulty we always go walls first.

But as I say this is my preference for the buildings.

I think most players will use auto construction in the later stages of the campaign for their settlements which are not likely to be attacked, so Resource Buildings and Income Buildings should have higher priorities and Walls/Garrisons are not really necessary.

Interesting, your priorities are basically the opposite of mine.