Driving with chinese license holder in the car

Have never heard that, but that would be very interesting. Would also make all my illegal driving in China technically legal.

"I have repeatedly read . . . "

One or two citations would help track this down.

I have repeatedly read that foreigners can drive car in China if there is a Chinese citizen holding a Chinese driver's license also in the car.

All this time in China and I've never heard or read this assertion even once. I'm also curious about the sources of your information....but I think you are engaging in wishful thinking.

I would not count on it. If your Chinese friend has a licence then let him drive.
In countries where you have a "learning driver", you still need a restricted licence.

... my GF is Chinese and holds a license,

If you search 道路交通安全法 regulations, at least section 19 addresses the issue of driving without license as a serious offence. Traffic police can detain the violator for up to 15 days. The vehicle owner can be fined for large sum of money.
A licensed driver must have passed written test, which includes knowledge of all the regulations. Since your friend has a driver license, s/he must know this very well. You can ask him/her to verify.

My dad taught me to drive in NZ this way. But it is NOT the way it is done in China. Chinese HAVE to go though a driving school. What's more: there would be major questions of insurance coverage to take into account so I'm smelling bullshit from somewhere.

There's no such a saying, but there's still a solution to it, when in downtown of citys , let your girlfriend drive, and when running on highways you just sit back and relax to do it, no policeman will stop you and check your license

The insurance coverage goes with a car when annual vehicle inspection, not the driver himself

Bad advice above.