Trade Minister Todd McClay has apologised to the Prime Minister for not being better briefed about China trade retaliation to a possible investigation into claims of surplus steel dumping.
Prime Minister John Key said his office was told of Chinese threats to New Zealand exports, but he had not been informed because it was not "official advice".
A report from Fairfax Media last Sunday said Chinese officials had warned kiwifruit marketing company Zespri there could be retaliation if New Zealand investigated claims of steel dumping.
"What I was aware of was, when I was travelling overseas on this most recent tour ... we were aware that there was a story that would turn up in Sunday Star-Times, and so I was advised of that a couple of days before that."
He said he understood there was no official advice that there was an issue.
"Apparently there was an email between Zespri and an industry body, so nothing official, and all of this is, and remains, very much unsubstantiated."
However, this afternoon, Mr McClay said the Ministry of Foreign Affairs and Trade had been assessing the veracity of the allegations for the past few months, and apologised to Mr Key for not being better briefed.
While in Indonesia last week, Mr McClay initially said there was no hard proof of any trade spat with China and the story of Chinese officials threatening kiwifruit, dairy and wool exporters was "extremely hypothetical".
A few days later, Mr McClay said he remembered he had been personally briefed on the matter by his ministry the week before when he was in China.
Now, in a written statement released on Monday, he said ministry officials had been dealing with the matter for the past few months.
"I want to make it clear today that there have been discussions and limited correspondence over the past few months as the Ministry of Foreign Affairs and Trade has endeavoured to assess the veracity of these reports," his statement said.
Mr McClay said he had asked his office for a full review and had received assurances from the Chinese government that it was not taking any retaliatory action.
Mr Key told Morning Report his own foreign policy adviser knew about the threat but he was not told because the claims were unsubstantiated.
"I think they get, frankly, quite a lot of stuff, which clearly they filter out," he said.
Labour finance spokesman Grant Robertson told Morning Report the government needed to be honest about how serious the threat really was.
He said Mr McClay was out of his depth and must resign.
"I don't think Todd McClay or John Key have been straight up about this from day one. At the start of this we had the Prime Minister saying that there had been no indication from China that there was a problem. "
"There clearly had been an indication - MFAT officials had been working on it for months.
"I'm frankly getting quite sick of officials getting chucked under the bus by this government.
"This is a situation where a body within the Chinese system is expressing concern to our large exporters, they in turn are concerned enough to refer that information on to the officials.
"That should be triggering, inside the politicians, action - urgent diplomatic action."
He said the government should be standing up for NZ exporters by investigating the threats and the allegations of steel dumping.
Mr Key said he still had full confidence in Mr McClay.
"I wouldn't expect his resignation but I think it's a matter of good practice of the government to try and make sure we are clear in what we are saying."
Mr McClay said there was a limit to what he could say as there were legal constraints around the reporting of competition complaints that were not yet under investigation.
Last week Mr McClay admitted he knew Chinese officials were threatening kiwifruit, dairy and wool exporters with repercussions if claims of steel dumping by Chinese producers were investigated.
He had initially described the reports as "extremely hypothetical".
He said he had remembered he was actually informed of the matter while he was in China.
Mr Key told Morning Report Mr McClay was not briefed on any official threats.
"The point as I understand it is very much that you've got an industry player, and you've got a company who are talking about their fear that there could be some sort of retaliatory action. That's very different from MOFCOM [Ministry of Commerce of People's Republic of China] telling the Minister of Trade.
"The Minister of Trade actually met, I think, with his counterpart in China and the issue was not even raised."
The prime minister said he did not believe dumping was taking place.
"Well, I don't have any evidence to support that that is taking place. But, you know, we have very clear rules. If a company in New Zealand believes that an offshore company is dumping then they are quite free to take a complaint to MBIE."