To be fair, Pakistan had never stated that it was contend to settle with the baseline JF-17. In fact, the progression of the fighter is inline with the general evolution of the militaries of the Indian Ocean region. Indian, Pakistan's main rival is maintaining a fleet of very capable 4th gen fighters and is planning (at least) to introduce more advanced ones down the road. AESA radars and helmet sights are basically a necessity at this point for any serious air force.
While payload and range will always be an issue for the JF-17, the main prize it gives to Pakistan is the capability to manufacture a fighter without being completely dependent on any single supplier/benefactor. And in comparison with a J-10 with roughly the same tech, the JF-17 is still going to come out cheaper.
Fighter planes are going to be more expensive as they go down the road, if one wants a capable platform.
They settled on this fighter size and weight in a time where it wasn't 100% clear how 2018 and air combat's future will look like and be dominated by. They thought cheaper is better as long as it offered enough range and payload for a nation the size of Pakistan where huge range like a flanker will be cost inefficient when calculating expected life of fighter in an actual war. The thinking may have been that high end avionics and electronics will become easy enough to miniaturise with improving technology and improving Chinese technology base. Now, everything is doable of course, but there is a cost, one that is possibly greater than expected.
Pakistan has over 100 JF-17s in service at this moment. India's equivalent in Tejas at this moment has close to zero combat effectiveness. When properly inducted it may very well be far more sophisticated and capable. MAYBE. But at this moment Pakistan's project has clearly been executed better in comparison. They are also building it themselves and can build as many as they want to buy. China has pretty much zero say in what Pakistan wants to do with JF-17 or how they can be used, so it is effectively domestic.
To get HMS, HOBS, and AESA, along with the usual smaller improvements in newer builds, it will of course come at serious cost increases. Problem with this fighter is the question whether increasing the costs by something significant (let's imagine it was 50%) is worth it for potentially marginal improvement to combat effectiveness. This is where their airforce needs to do some serious analysis and number crunching to figure out what the most sensible strategy is for this platform, given the available options in modifications and their costs. We're not privileged to that data so it's impossible to say. But one thing is for sure, buying J-10c won't happen (or indeed a J-10c customised for PAF). PAF has the support and training all in place for JF-17. Introducing J-10 will add an entire set of secondary costs. It also doesn't give Pakistan the option to self-manufacture and determine what direction they want the platform to grow. PLAAF has every say on this platform and CAC obliges since their J-10 production lines to date are saturated by PLAAF orders and they cannot build them fast enough. Let's remember the USAF has over two thousand capable modern fighters and numerically as well as technologically superior support - IIRC well over a thousand F-16s alone!
Even with these ideal additions, JF-17 will still be much cheaper overall than acquiring and supporting new J-10s even though J-10 platform offers a potentially longer future owing to larger frame and superior aerodynamics. Whatever small performance edges J-10C holds over an updated JF-17, will probably not be worth the time and trouble at all, even if the costs are justified. They may as well express interest in J-31 once SAC gets the product ready. If PLAAF and/or PLAN throw their weight behind J-31, PAF (and any others interested) can potentially benefit from the scaled production if it is ordered by everyone. I doubt that's going to happen though. Still no indication PLAAF is interested at all, and PLAN's decision hasn't been shown. J-31 cannot be brought into a finalised product without serious order numbers and PAF alone will not be able to afford a properly developed J-31.
After the second or was it third prototype surfaced many months ago, the buzz around this model has fizzled out and it will probably stay a dormant program until huge investments are made by a dedicated government. No none F-35 block nation can afford the costs to develop and procure J-31. And I doubt SAC will spend the money to completely develop it without securing orders. So PAF's fighter path for near and medium term is JF-17 only. Every other option is just nowhere near cost effective and none offer unrestricted domestic production as a bonus.