CANBERRA: China's diminishing aid to South Pacific states is increasingly targeted toward its allies in the region as appetite there for Chinese credit declines and competition grows with the United States for influence, an independent Australian think tank reported on Tuesday.

China's overall economic influence on the 14 aid-dependent Pacific Island nations is losing ground because of better loan deals being offered by US allies, especially Australia, the Sydney-based Lowy Institute said in its annual analysis of aid to the region.