The Government won't be lending nearly $10 million to struggling Westland Milk Products, following news it is likely to be sold to a Chinese company.

The loan of $9.9m was to come from the Provincial Growth Fund, but the MBIE unit overseeing grants to the regions said it had suspended negotiations to close the loan deal.

Westland, a long-established farmer-owned cooperative has signed a conditional agreement to sell to Hongkong Jingang Trade Holding otherwise known as Inner Mongolia Yili Industrial Group for $588m.

Provincial Development Unit head Robert Pigou said the the unit had been mindful of the possibility the company would change hands.

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Regional Development Minister Shane Jones' office said a firm contract had never been signed with Westland and a clause had been inserted from the start of negotiations providing for the loan to be called off if there was a change in the company's situation.

The loan from the PGF was to accelerate Westland's plan to produce higher value products. It was agreed to to retain milk processing on the West Coast and provide new jobs, the Government said at the time.