China is refusing to agree to make its aid spending in the Pacific more transparent and co-operate with other donor countries.
The Pacific Islands Forum leaders yesterday held talks with the leaders of observer countries and organisations - the largest delegations being from the US and China, wrestling for influence in the region.
Prime Minister John Key said the Chinese delegation had made it clear they did not want to be bound by the "Cairns Compact" - a Forum agreement for better co-ordination and information-sharing about aid programmes.
He said China had listened to the arguments about why including the Asian superpower in that co-operation would benefit the region.
"We will continue with the dialogue, but in the end every country has a sovereign right to determine how its aid should be spent."
China was becoming a larger part of the global economy "and as its wealth increases it is spreading its footprint across the world - that includes the Pacific".
Key said he was not concerned about China's increasing influence in the Pacific, saying New Zealand worked constructively with China.
"Aid can make a real difference to those countries and we should encourage that. Any bilateral concerns the United States might have are for them to address with China."
"Soft loans" from China have meant Tonga's debt to China is about one third of its GDP - and the Cook Islands and Samoa both owe the equivalent of 16 per cent of their GDP. China has also provided unspecified "military aid" to Tonga.
Key said countries taking up such loans needed to think about their ability to repay them. "Countries have their own sovereign rights and if they want to engage in direct loans with any other country, they are free to do so."
Speaking to the Weekend Herald after the post-forum dialogue, the head of China's delegation, Vice-Foreign Minister Cui Tiankai, said there was a difference between the aid China gave as a developing nation out of friendship and that of developed countries such as New Zealand., and Australia under commitments.
The developed countries' aid was made under obligations for Overseas Development Assistance of 0.7 per cent set by the UN. China however was giving in the general framework of "south-south" co-operation. "We are doing it on a voluntary basis because we are friends of the islands countries. This is of a very different nature."By Claire Trevett @CTrevettNZH Email Claire