"If you define those cadets or students as spies, yes, then I was teaching spies", he admitted on Wednesday. He said some of his students were trained to collect, monitor and interpret information.
Prime Minister Bill English and the National Party needed to "seriously explain themselves", over the issue, Peters said.
According to the New Zealand Herald the 55-year-old MP rejected the accusations as a racist "smear campaign" targeting him "just because I am Chinese".
While there is no word on the outcome of this investigation - Newsroom reports that SIS has "scrutinized him at times over three years, including interviewing one person about him last year" - the case unleashed a stream of polarized reactions.
"Once you understand the system and the universities, then I'm not a spy, just a teacher", he said.
This is likely what has SIS anxious - particularly as New Zealand shares national security information with the four other major anglophone countries (the USA, the U.K., Australia, and Canada), and as Yang had sat on the parliament's select committee for foreign affairs, defense, and trade from 2014 to 2016.
FT said he "has consistently pushed for closer ties" with China, and also "for worldwide policies that echoed those of the Chinese Communist Party".
Mr Yang left the institute in 1989, and the Times says it is unclear what he did until leaving China to study at the Australian National University in Canberra in 1994.
'I have been nothing but upfront and transparent about my education and employment, ' he said.
Mr Goodfellow said he had "no idea" about any Security Intelligence Service probe, while Mr English did not comment.
"The influence of the government of China is real within the New Zealand government".
News outlets and opposition politicians in New Zealand pounced on Yang's admission that he "was teaching spies" how to parse English communications at the Luoyang Foreign Language Institute, with many arguing that the fact this was not widely known until now is a major scandal. The newspaper said the school specialised in training both "openly acknowledged military intelligence officers and "secret line" deep cover agents".
"I can understand people can be concerned, because they do not understand Chinese system, but once they understand the system they should be assured this is nothing really you should be concerned about". It has become a key export market for New Zealand's milk and agricultural products and also contributes to New Zealand's growing tourism industry.