The Ferns were unlucky - as the Hungarian referee gave a bizarre first half penalty which got China back into the match - and will also rue giving up a poor second goal to the Chinese.
But on balance, it was ultimately their failure to take chances against Holland and Canada that proved costly, and left everything handing on this result.
In front of a crowd laden with Chinese support, the Ferns finally broke their goal drought at this tournament in the 28th minute, and the strike came from an unlikely source. A Ria Percival corner drifted across the six yard box, falling to defender Rebecca Stott. Lurking just beyond the far post, the defender blasted home on the half volley from a narrow angle. It was just Stott's third international goal in 40 appearances for the Ferns.
However the lead lasted less than 15 minutes, after China was awarded a penalty for an alleged hand ball by midfielder Betsy Hassett in the 41st minute. It was a poor decision by Hungarian referee Katalin Kulcsar, as the ball struck Hassett on the chest and made no contact with her hands and arms.
It's always difficult for referees - who have to make judgements in a split second and don't have the benefit of technology - but Kulcsar should have done better; she has been an international referee for more than a decade and it is generally accepted that if there is any doubt, penalties should not be given.
China accepted the gift, midfielder Wang Lisi tucking the spot kick into the corner past Emily Nayler.
It was rough luck for the Ferns, who had looked the more effective team in the first half, especially immediately after their goal. Still, they had to bounce back but it got worse with China's second goal just after the hour mark. If the penalty was hard to take, this one was also regrettable as Wang Shanshan beat Nayler to a long cross field ball. It was a courageous effort by Shanshan but Nayler needed to do better, as such situations usually favour the goalkeeper but the New Zealand custodian was hesitant.
The Ferns rebounded three minutes later, with the best goal of the game. Ali Riley's deep cross was headed back across goal by Amber Hearn, before being expertly tucked away by Hannah Wilkinson.
There were further chances to both teams - with Abby Erceg going desperately close with a header - while the Ferns were also frustrated by deliberate time wasting and gamesmanship by the Chinese in the closing minutes, which even saw the Chinese coach sent off for interference in added time.
New Zealand 2 (R. Stott 28, H. Wilkinson 64 )
China 2 (Wang L 41 (pen), Wang S 60)
Halftime: 1-1
