"We've actually seen that [chequebook diplomacy] for a very long period of time," Key said, "in fact, they were involved in my time in spending money, but also we worked alongside them on projects."
Speaking about Hong Kong and Taiwan, Key did expect China would defend its territorial boundaries if circumstances came to it.
However, he did not believe either China or Taiwan would want to escalate relations to that point.
"There's always a chance [they'll go for Taiwan]," Key said, "but you can even see in Hong Kong, when the problems took place a year or so ago, they were extremely cautious about the way they acted.
"Maybe that's always possible, but I don't think either side's going to do that in my personal view. There'll be a lot of sabre-rattling but I think they'll be a lot more cautious than people think."
Key said he had resisted pressure from Australia and the United States to be more outspoken on China.
"There are many countries that wanted us to be more outspoken," however, Key denied that New Zealand refused to stand up against China for its human rights record.
Key said global relations with China could either be aggressive or diplomatic, but doubted how successful an adversarial stance against China would be for New Zealand.
"What does it achieve, will it actually change anything in China? Probably not. Will it have a big impact on some massive importers that New Zealand has like Fonterra or Zespri? Absolutely it will.
"To be fair to [Ardern], she has tried to [strike a diplomatic balance]. But there's no question the temperature has gone up in China."
Key said a shift in attitudes towards China arose from Donald Trump's US presidency.
"In my day with President Obama, China was seen as a country that was becoming a good and secure global citizen, and yeah there were issues, but people were welcoming of wanting to deal with them.
"Donald Trump changed that view and a lot of people have believed that and become a lot more negative."
Key said that because of New Zealand's economic reliance on China as our biggest trading partner, caution was necessary.