Previous work has provided evidence that both merit and social relationships guide resource distribution in children. However, no prior studies have addressed the question of how children as third-party distributors balance the 2 factors when they are in conflict with one another. Two studies tested 7-year-old Chinese children's allocation of 3 and 4 rewards for work performed by 3 different pairs of recipients. In each pair, 1 recipient was a stranger and the other recipient was either the child's friend, a disliked peer, or another stranger. The 2 recipients were either equally deserving (Study 1, N = 48) or unequally deserving, with the child's friend/disliked peer/another stranger having completed less (Study 2a, N = 48; Follow-Up study, N = 60) or more (Study 2b, N = 48) work to deserve the rewards. The children generally showed a positive bias toward their friend; the children gave more resources to their friend than to an equally deserving stranger (Study 1) and distributed resources equally when the friend was less deserving (Study 2a and Follow-Up combined). The children also showed negative bias toward the disliked peer by distributing resources equally when he or she was more deserving than the stranger (Study 2b). The children adhered to merit when distributing between two strangers (Study 1, 2b, combined Follow-Up). These findings suggest that, by 7 years of age, children resolve conflicts between social relationships and merit by basing resource allocation decisions on relationships, but they moderate those decisions depending on the recipients' merit.