As China flexes its muscles throughout the Pacific, New Zealand is now finding itself in a troublesome position as the nation awaits a major report into foreign interference expected to come out soon.

Key points: New Zealand is considering foreign interference laws similar to Australia's

New Zealand is considering foreign interference laws similar to Australia's The Government however is openly divided over how or whether to do so

The Government however is openly divided over how or whether to do so Balancing US relations amid a dependence on China is central to the dilemma

Until now, the United States and Australia have fretted over the possibility of China exerting influence through debt and construction in the region, but much less attention seems to have been paid to New Zealand amid increasing reports of espionage by Beijing.

But there are signs of divisions emerging within New Zealand's coalition government over how to respond to claims of undue influence from its largest trading partner.

This week Deputy Prime Minister and Foreign Affairs Minister Winston Peters told the media that laws dealing with foreign interference similar to those already enacted in Australia are being considered.

But at a media conference on Monday, Prime Minister Jacinda Ardern appeared unaware of any new legislation, and said she would await the findings of an ongoing parliamentary committee into foreign interference before any changes were made to existing laws.

Mr Peters, the leader of the New Zealand First party which Ms Ardern's Labour party needs to work with to remain in government, has previously spoken out strongly on Chinese interference.

New Zealand Deputy PM Winston Peters, right, has expressed support for new laws, in contrast to his Labor partners. ( Pool Photo via AP: Thomas Peter )

The disconnect between the two is the latest sign of the strain the country is facing as it struggles to deal with potential Chinese influence.

According to New Zealand foreign policy expert Dr Reuben Steff from the University of Waikato, the situation comes down to how to appeal to both China and its citizens amid fears of appearing to side too heavily with Washington or Beijing.

Things came to a head late last year when New Zealand reportedly banned Huawei from its 5G network, which Ms Ardern has since denied, but Beijing quickly responded by publishing a state media article alleging it had been "stabbed in the back".



Meanwhile, a major tourism event was cancelled, an Air New Zealand flight had to turn around, there was a drop in Chinese student enrolments, while a free trade deal renegotiation appears to have stalled.

The relationship started to wobble after it seemed NZ was considering banning Huawei from its 5G network. ( ABC News: Jarrod Fankhauser )

China trying to 'guide, buy or coerce' New Zealand

Concerns about foreign interference in New Zealand burst into the open late in 2017 when academic Professor Anne-Marie Brady published the paper Magical Weapons, which forensically detailed the scale of China's alleged interference in New Zealand.

"The People's Republic of China's (PRC) attempts to guide, buy, or coerce political influence abroad are widespread," she wrote.

"China's foreign influence activities are part of a global strategy with almost identical, longstanding approaches."

After the study was published, Professor Brady reported that her home was broken into, her car was tampered with, and that she received threatening letters and phone calls.

Professor Brady is under police protection after repeated attempts to thwart her Chinese interference research. ( Supplied )

Then, just last week, Professor Brady was controversially barred from speaking before the parliamentary committee inquiry into foreign interference chaired by Labour politician Raymond Huo, whom she identified in her paper as having extensive links to the Chinese Communist Party, which he denies.

A day later, the government-dominated committee then backed down and agreed to consider allowing her to testify, which observers have pegged to a fear from the government of handling the situation undemocratically.

While New Zealand's politicians tread cautiously around China, the country's security agencies have increasingly expressed concern at the scale of foreign interference in the country.

"We know New Zealand is a target of espionage and foreign interference activity," stated the New Zealand Security Intelligence Service in its 2018 annual report.

"Foreign actors attempt to gain access to sensitive government … influence decision makers, control migrant communities, and acquire intellectual property."

'Dancing with a dragon is risky business for Kiwi hobbits'

Prime Minister Jacinda Ardern said politics were not involved in Air New Zealand flight NZ289 turnaround. ( AP: Mark Baker )

The results of the parliamentary committee inquiry into foreign interference will be watched closely in New Zealand, as well as the currently divided coalitions government's response to its recommendations.

Some parallel measures have already taken place — like Australia, New Zealand has also begun attempts at a Pacific realignment with million-dollar aid boosts throughout the South Pacific.

However unlike Australia, New Zealand has trodden more carefully when it comes to passing foreign interference laws, largely because in addition to being a far smaller player in international affairs, it has a different set of geopolitical priorities than Australia, according to Dr Steff.

"Australia and New Zealand face the same problem — increasing trade with China but a close security relationship with the US," he said.

"For Australia, ensuring they remain in the orbit of the US is viewed as critical to your long-term security; for New Zealand, geopolitical threats are often an after-thought and don't enter into foreign policy considerations to the same extent as they do in Australia."

Meanwhile, proponents of China in New Zealand have been actively engaged in damage control since the relationship started to erode after the Huawei debacle last year.

"Interests and organisations in New Zealand that support deepening New Zealand-Chinese ties are currently playing defence and it's not clear what China gets out of this," Dr Steff said.

For example, in a speech last month, Stephen Jacobi — the executive of one pro-China organisation, the New Zealand China Council — openly acknowledged the shifting landscape.

"As our relationship continues to grow and deepen, it is perhaps inevitable that there will be some heightened public debate about the extent of that relationship and its impact here in New Zealand," he said.

"Dancing with a dragon must, after all, be considered risky business, even for us Kiwi hobbits, and even at the best of times."