"If you define those cadets or students as spies, yes, then I was teaching spies", he said. He said some of his students were trained to collect, monitor and interpret information.
But PM Bill English did not confirm whether Mr Yang had been investigated.
He called himself a victim of a "smear campaign by nameless people" out to damage him and the party just before the Sept 23 general election, which is expected to be a tight race.
"Members of the Chinese community in New Zealand would have been obliged to respond to any fundraising request from him as a few would have been aware of his background, and present links to their homeland".
"Once you understand the system and the universities, then I'm not a spy, just a teacher", he said.
"This is a New Zealand citizen".
He says it's unfortunate this controversy has arisen so close to the election but New Zealand has to establish some clear boundaries on who can be eligible to be an MP. He said it is quite common for people from China to work as civilian officers in the military.
Mr Jian condemned the "defamatory statements" and said he was a proud New Zealander who had been transparent about his background.
Mr Yang also said he was a member of the Communist Party while living in China but was no longer a member. He served on the parliamentary select committee for foreign affairs, defence and trade from October 2014 until March previous year.
In Beijing, a Chinese Foreign Ministry spokesman would not comment on the internal affairs of other countries, but said "we are firmly opposed to false reports, groundless accusations and falsifications from some media", the Agence France-Presse reported.
FT said he majored in English language at the People's Liberation Army Air Force Engineering Academy in 1978, and also taught at the academy after he graduated. The Financial Times said the latter institution specialised in training military intelligence officers and deep cover agents. "But once they understand the system, they should be assured that this is nothing, really, you should be concerned about".
He also used the opportunity to lash out at Chinese ownership in New Zealand, including Silver Fern Farms, which has its headquarters in Dunedin.
According to stuff.co.nz, New Zealand's biggest news website, Yang admitted that as a lecturer he had taught students how to intercept and decipher communications but not to engage in "the physical act of spying".