What is the correct way to make china grass ready for Falooda?
China Grass is intended to be used dissolved.  From (no endorsement intended)  Spices Of India :

China Grass is also known as Agar Agar, Faluda, Japanese Moss, Ceylon Moss and Bengal Isinglass.
It is obtained from various seaweeds, has no aroma and has a neutral taste. It is used to make jellies and, because of it's neutral taste, can be flavoured with any essence.
To use China Grass to make jelly, immerse broken strands of China Grass in boiling water to dissolve them. Add Flavouring/Essence and leave to cool and finally set in the refrigerator.
Alternatively, place Chine Grass in a pan of milk, bring to the boil (whilst stirring) and strain to remove any lumps. When cool, add flavourings of your choice (try Sugar, Cardamom Powder etc), pour into a dish and refrigerate until set. When ready to serve, cut into fancy shapes using a cooky cutter and decorate with Almonds or Pistachio Nuts.

So it seems that it is being used as a thickener for the dessert/drink you are making.  While looking at different recipes for Falooda/Faluda, I noticed that many recipes do use China Grass but many that had actual noodles in the dessert used vermicelli for the noodles.
So, you may want to try adding vermicelli or another type of noodles to your existing recipe or try another recipe that uses actual noodles.