The upgraded J-7G's are not bad at all..but yeah I agree it is better to have older aircraft in service than disbanding an entire unit because there aren't enough newer aircraft. The basic skills of being a combat pilot is not that much different between different generations of aircraft.
As long as the older aircraft are safe, keeping them in service isn't a big issue IMO. Unlike India which has had a lot of crashes with their Mig-21's, China is able to make every part of the Mig-21/J-7's, so the airframes are overhauled domestically with new replacement parts.