Key Points:

A millionare businessman wanted by authorities in China - and who has been granted New Zealand citizenship - donated money to a Labour Party campaign fund.

The Herald on Sunday understands Yang Liu donated $5000 to Cabinet minister Chris Carter's Te Atatu electorate committee before the last election. Wagering a bob each way, he also met National's John Key and donated another $5000 to that party.

The donations were made shortly after Liu, also known as Bill Liu, applied for New Zealand citizenship.

MPs from both parties - Dover Samuels and Pansy Wong - wrote supporting his citizenship application.

And two months ago, Associate Immigration Minister Shane Jones approved Liu's citizenship application - believed to be against advice of officials. The Internal Affairs Department is still investigating the possibility of immigration fraud that could result in Liu being prosecuted or losing citizenship and residency.

The citizenship approval had been delayed since 2005 while Internal Affairs officials asked questions of Liu about his multiple names, passports, dates of birth and companies.

In a letter leaked to TGIF Edition journalist Ian Wishart, department official Johannes Gambo asked Liu to substantiate his "good character", given his outstanding arrest warrant in China.

According to Australian authorities, Yan was wanted in China for alleged embezzlement, then travelled to Australia on a number of occasions, first as Yongming Yan, then as Yang Liu.

He was later charged with operating bank accounts under a false name and in November 2006, the Supreme Court of New South Wales ordered Liu to forfeit more than $3.3 million.

The money was later repatriated to the Republic of China, according to the Commonwealth Director of Public Prosecutions of Australia in October last year.

At this time, Liu was a New Zealand permanent resident and had been since 2002. He lives in a plush Metropolis apartment worth $2.4m, according to a 2005 valuation, and also bought a $5m waterfront property in Bayswater in 2006.

Liu employs 30 people at his popular Chinese restaurant, Jade Terrace in Manukau, which has hosted election fundraising dinners for Labour candidate Raymond Huo, National's Pansy Wong and, yesterday, Act's Kenneth Wang. He has also been involved in seafood exports with Talleys, Sealord and Sanford.

Dover Samuels is standing by Liu, saying the Interpol warrant issued by Chinese authorities was politically motivated.

He is friends with Liu and his wife Vienna, who he said was also a New Zealand citizen. Their young daughters, Emily and Tiffany, were born in New Zealand.

Samuels believed his friend was fleeing human rights abuses, and would be in danger if he were returned to China.

The retiring Government MP said the Immigration Service and Internal Affairs Department had threatened to cancel Liu's permanent residence, then had leaked the papers to Wishart as a smear campaign.

Samuels demanded an inquiry into the leaks.

"I back this guy, I know his family. He's a good fella," he said. "He's never broken any laws here. He's pro-democracy, he's against the oppressive regime in China, so they're out to get him.

"This is New Zealand, not bloody China. Do they expect a character reference from the Chinese regime? They might as well ask for a character reference for the Dalai Lama."

Other former supporters, in Labour and National, have distanced themselves from him. Chris Yoo, another Labour candidate, said he had met Liu to discuss politics but not campaign financing.

National's Pansy Wong and John Key had met him twice for lunch before the 2005 election, but both said they had been unaware of the allegations against Liu.

Rick Barker, the Internal Affairs Minister charged with signing off citizenship applications, was also in the long list of politicians who knew Liu. As a result, he handed the file to another minister, Shane Jones, to deal with.

But the leaked documents show Barker wrote back to Dover Samuels, saying: "I will take his personal circumstances and your letter of support into consideration."

- ADDITIONAL REPORTING: JONATHAN MILNE, ANNA RUSHWORTH