China says Australian politicians are "wrong" to fear its investments in the Pacific.
It said the Pacific Islands need large amounts of capital to "take off" economically, and that its aid programme is a response to "urgent needs".
This comes after Australia accused China of saddling Pacific nations with unsustainable debt.
The Sydney Morning Herald reports China's foreign ministry has challenged Australian officials to "name one example with specific details as to where, when and how China caused unsustainable debt".
This week, Labour's foreign affairs spokesperson Penny Wong proposed that Australia set up a regional infrastructure fund to assist Pacific nations who face a "particularly acute" deficit.
Australia recently signed an agreement with Japan and the US for increased collaboration to support economic development in the region.
Last month foreign minister Julie Bishop conveyed Australia's concern that the consequences of island nations entering into financing arrangements with China could undermine their sovereignty.
But Chinese foreign ministry spokeswoman Hua Chunying told reporters in Beijing that claims China was creating debt traps in the Pacific were groundless.
She quoted Pacific government ministers who had "refuted the wrong remarks of the Australian side".